Gold forecast: XAU/USD drops in double dose of bearish news

Already lower on the day thanks to the risk on rally as traders reacted positively to Donald Trump’s choice of Scott Bessent for Treasury Secretary, gold took another dive lower in the last hour. This time it was on the back of reports of a ceasefire between Israel and Lebanon. The news also sent oil prices lower. If confirmed, this will potentially reduce the appeal of gold from a haven point of view, something which had benefited gold greatly since Israel’s war started. With reduced haven demand and the recent dollar strength, our gold forecast is turning modestly bearish in the short-term outlook, although we still envisage the metal potentially rising to $3,000 in the slightly longer-term view.

Earlier, the big news in the markets has been the appointment of Scott Bessent for US Treasury Secretary by president-elect Donald Trump. Apparently, he is a measured choice, who is seen providing more stability into the US economy and financial markets than some of the other candidates that were under consideration. As a result, we saw US index futures and European indices rise sharply at the Asian open, before extending those gains. Meanwhile, bond prices also bounced back, and Bitcoin even came under pressure from around just under the $99K mark. News of Bessent has been somewhat bearish for gold, even if it has caused the Dollar Index to weaken – but that’s largely due to a relief bounce in the EUR/USD exchange rate more than anything else.

Gold drops, giving back half of last week’s gains

Today’s 3% drop comes on the back of a big rally last week when gold and oil were both supported as geopolitical tensions remained in the spotlight. Last week, not only gold rise almost 6% but it completely made back the losses suffered in the prior week and some. Still, it couldn’t rise to a new record high as the ongoing dollar strength held back the bullish momentum. Meanwhile, investors were busy buying Bitcoin, which hit repeated records as it closed in on the $100K mark, boosted by optimism that Trump’s election victory will mean crypto-friendly policies. In the FX space, the dollar remained bid, largely thanks to a weakening euro, which was hit by soft PMI data from the eurozone. While at the start of this week, the dollar has eased back, reduced haven demand and news of Bessent means both gold and silver have come under significant pressure.

Hawkish shift in US rates could undermine gold forecast

The stronger US dollar hardly had any impact on gold prices last week, but historically it is one of the most important variables in determining gold’s prices. So, this is something that could ultimately undermine gold in the weeks ahead.

Another factor that could potentially impact gold negatively is the recent hawkish repricing of US interest rates. The market is no longer sure of a rate cut in December and prices in around 14 basis points of a cut only. I think the Fed may go ahead with a standard 25bp rate cut anyway, before pauses the cycle into the new year.

Higher interest rate expectations and rising yields tend to hold back assets that pay no interest such as gold.

Key US data to come in mid-week ahead of Thanksgiving 

Whether or not we will see further hawkish repricing of US rates will be dependent on incoming data. The US economic calendar is relatively quiet until the middle part of the week. Wednesday brings a slew of economic data ahead of the Thanksgiving holiday. Investors will scrutinize the second estimate of Q3 GDP, which initially underwhelmed with a 2.8% reading. The release of core PCE, the Federal Reserve’s preferred inflation gauge, along with jobless claims, durable goods orders, pending home sales, and FOMC meeting minutes, will provide further insight into the US economy's health. 

These reports could influence the markets. Stronger-than-expected US data would likely be welcomed by gold bears and dollar bulls, which could increase pressure on XAU/USD and especially the EUR/USD’s downward trend. But if we see weak data, then that could start to see the odds of a December cut increasing again, which should be mildly positive for gold, while if the data is extremely poor, then it could also bring back into focus concerns about US stock valuations which are looking quite stretched. With investors largely absent on Friday, Wednesday's data releases could set the tone for the remainder of the week, and not just for gold.

Technical gold forecast: XAU/USD key levels to watch

Source: TradingView.com

The XAUUSD chart is looking interesting after today’s drop. While gold’s underlying trend remains bullish, the drop suggests it may have started a new correction phase. Earlier, it took out liquidity on both sides of Friday’s range before bouncing off its earlier lows, before coming under renewed pressure on the back of the ceasefire news. A potential close below Friday’s low of $2668 would be a bearish technical development today, as that would result in the formation of a bearish engulfing candle. Given how strong the bullish trend has been, the bears would and should be looking for a confirmation signal now – and a potential bearish engulfing candle here could just be that.

In terms of levels to watch, well the key area of resistance to monitor is between $2708 to $2725. This zone was support before gold plunged on November 6, initiating some downward momentum until mid-November when the metal staged a strong recovery. Incidentally, today’s drop happened from within this $2708-$2725 area, confirming its technical importance.

In terms of support levels, the key short-term area is around $2660, where the 21-day exponential comes into focus. Break this area decisively and gold could head down to the next support area around $2580. Below that zone, the area between $2500 to $2529 will then come into focus – the latter being the point of origin of the last breakout that took place in the second week of September.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R