Gold outlook: XAU/USD stabilises but this could be short-lived

Gold has found some relief from a weaker US dollar and lower yields in the last couple of days, but it could come under renewed pressure as the greenback’s weakness could be temporary, while easing Middle East tension owing to the ceasefire agreement point to lower haven demand. The dollar index fell yesterday as the euro staged a relief rally, after ECB’s Isabel Schnabel pushed back against the idea of a 50 basis point rate cut. Risk assets also rebounded with the Mexican peso after Trump posted that he'd had a "wonderful conversation" with President of Mexico, Claudia Sheinbaum. So, after that big sell-off on Monday, gold has spent the last few days trying to stabilise itself and so far, it has done a good job at that. However, the metal remains below some technically important levels, and with other precious metals struggling – platinum for example is down for 4 out of the past 5 weeks and silver threatening to break back below $30 – gold is by no means out of the woods just yet. In fact, one could argue that following Monday’s big drop that the gold outlook has turned bearish and that we should be expecting to see some further downward pressure from around the current levels.

Technical analysis: gold outlook not so bullish anymore

So, gold prices have taken a bearish turn in the near term from a technical perspective, following a sharp drop on Monday that formed a large bearish engulfing candle on the daily chart. The decline began as prices hit resistance at a key zone, precisely where expected: the $2708 to $2725 range, highlighted in dark orange shading on the chart. This zone, which had previously acted as a crucial support level, became resistance after breaking down during the election-day selloff. The retest confirmed its strength as resistance, which comes as no surprise.

Whether this marks a full trend reversal or just a temporary pause remains uncertain—it’s too soon to tell. For now, traders should approach it level by level until more price action provides clarity. It’s worth noting that the long-term trend remains bullish, suggesting this could be part of a much-needed correction or consolidation phase.

In any case, I think the risks are now skewed to the downside in the near-term, so let’s concentrate on some key levels to watch.

Key technical levels impacting short-term gold outlook

Source: TradingView.com

Focusing on the shorter-term levels on the gold chart, the key resistance zone to watch now lies between $2643 and $2668. This area was being tested at the time of writing and the bears would need to show up here if they want to win control of price action. The upper end of this range marks Friday’s low before being engulfed by Monday’s sell-off. As long as prices stay below this range, particularly under $2668, the bearish momentum signalled on Monday will likely remain valid. However, a daily close above $2668 would negate this particular bearish setup, although that is not to say it will necessarily be a bullish signal because prices have started to make a few lower highs and lower lows in recent trade. Gold is now inside what looks like a falling wedge pattern, which is ironically a long-term bullish continuation pattern, but one that could hold down gold for a while yet. So, even if that $2643-$2668 resistance area breaks, I wouldn’t automatically turn bullish on gold until further price action completely erodes the bears’ control. But the fact that I have mentioned this area is that if the selling were to resume this week, this is an ideal area for it to do so, from a short-term bearish point of view.

Anyway, on the downside, the next potential support level, if selling continues, is around $2580. This level represents the base of a breakout from mid-November and is critical to the short-term gold outlook. Should this support fail, gold may retreat further into a longer-term support zone between $2500 and $2530, highlighted in blue shading on the chart. This zone, a previous breakout area, has yet to be retested from above since the breakout in early September.

From a longer-term perspective, sustained selling pressure could eventually shift attention to the 200-day moving average ($2440) and the $2400 support zone. However, these levels will become in focus only if the market moves down below the levels mentioned above.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R