Gold forecast: XAU/USD eases US election keeping US dollar bid

The precious metal finally succumbed to rising yields and a strong US dollar last week. Following last week’s mostly weaker US data, including the October nonfarm payrolls report, third quarter GDP and JOLTS jobs opening, the US dollar was down for much of the week, before storming back on Friday. As I have mentioned previously, the dollar’s weakness was always going to be short-lived. Indeed, despite a big miss on the headline NFP data, bonds resumed lower, sending yields higher, which, in turn, provided resistance for major currencies against the greenback with gold also struggling to hold onto its earlier gains on Friday. The yellow metal ended Friday near its session lows, creating some bearish-looking price candles on both the daily and weekly time frames. So the near-term gold forecast is somewhat bearish ahead of the much-anticipated US presidential election and the FOMC’s policy meeting in the week head.

Focus turns to US presidential election

Friday’s US non-farm payrolls data was never going to change the Fed’s decision to cut rates by 25 basis points come Thursday. The fact that the data came in weak has all but cemented expectations for a cut, which is now a forgone conclusion. It is all about the US election right now, with market participants closely watching the potential impact of a Trump victory on European and Chinese assets, given the possibility of renewed tariffs. For this reason, we saw the EUR/USD weaken on Friday while currencies set to be impacted by tariffs also fell. With investors pricing in a Trump victory, the greenback could rise even further should those expectations are realised. It should be noted that a Trump victory is not fully priced in, given how close the candidates have been in the opinion polls. Thus, should Trump win the election, we could see the greenback rise even further in immediate repose, amid expectations that his policies will be inflationary. So, expect both bond and gold prices to potentially fall back in response, as USD and yields press higher.

Gold closes lower despite weak NFP

October payrolls came in much weaker than expected on Friday, adding just 12K jobs compared to the forecasted 100K, though wage growth slightly outpaced predictions at 0.4% versus 0.3%. A notable two-month revision lowered August's figure from an initial 142K to 78K, with no major disruptions like hurricanes or strikes to blame, unlike this month’s data. But while storms may have had some impact, the Bureau of Labor Statistics notes these effects can’t be precisely measured.

With the US election nearing, a major dollar correction seems unlikely, as markets and the Fed may overlook the soft payroll data as temporary. Consequently, the dollar's bullish outlook remains, potentially weighing on gold in the near term. Indeed, the initial dollar selling faded before reversing into the close on Friday. Hence, gold closed near its session lows.

Technical gold forecast: XAU/USD key levels and factors to watch

Source: TradingView.com

On the weekly time frame of the XAUUSD chart, the metal has formed a rather bearish-looking pattern – an inverted hammer – which is also its first red candle since early September. These sort of inverted hammer candles are often formed at the top of major trends, although in strong markets they usually signal a mere pause before the underlying trend resumes after some time elapses. What makes this pattern interesting is the fact the RSI is at severely overbought levels of over 80. Have we therefore seen at least a temporary top in gold prices? While this may turn out to be a significant reversal, I will still give the bulls the benefit of the doubt given the strength of the trend this year. So, for now, I will only be looking for a moderate further weakness, with the short-term trend line coming in around the $2700 area. The 2024 bullish trend line is seen around $2600 zone. These will be my immediate downside targets on this weekly time frame. I will re-assess my technical bias on gold once more price action is created this week, especially after the US election and the Fed meetings are out of the way. So the technical gold forecast could look and feel a lot different by then.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R