Gold Price Forecast: XAU/USD Holds Above $2k as 10-Year Yields Continue Incline

Gold, XAU/USD Talking Points:

• Gold prices showed another resistance reaction at the $2,050-2,075 zone, but sellers have so far been unable to push price below the $2k psychological level.
• The multi-year range remains in spot Gold and with Treasury Yields on the rise in the US, this could act as a hindrance for bullish continuation scenarios in XAU/USD. The big question around US macro remains when the Fed may begin to cut rates and that will likely have an impact on bullish themes in Gold. March is looking less prominent for that first rate cut and if that gets further priced-out, there could be bearish fundamental drive for metals near-term.
• I’ll be discussing these themes in-depth in the weekly webinar on Tuesday. It’s free for all to register: Click here to register.

Gold prices continue to hold very near the multi-year resistance that’s been in-play since the pandemic summer of 2020.

If we go back to that backdrop the Fed was adding liquidity at an aggressive pace, helping to drive risk assets in many different markets. In Gold, that bullish trend remained strong from the March lows into August trade, at which point price staged a strong and fast break through the $2k level. It didn’t get much farther, however, as resistance started to show at $2,075 and that was followed by a sizable pullback that held through the 2021 open, eventually bringing on a support test at $1,677.

By the 2022 open, bulls were at it again and when Russia invaded Ukraine there was a war bid to price in, helping Gold to make another run at the highs. This time, the high held inside of the prior swing at $2,075 and price, again, pulled back in a notable fashion to continue with mean reversion.

There was another test of the resistance zone in early-2023, pushed along by the regional banking crisis in the United States, which came along with the thought (or the hope) that the Fed may look to soften monetary policy. As evidence began to build that the environment may not be there yet, again, price peeled back from that resistance.  But this time it held at a higher-low, around the 1810 level which started to show in early-October.

Something unusual happened there, however. Gold had gone so aggressively oversold that RSI has only shown a similar setup four times in the prior twenty-plus years. The response to that started small, with an outside bar on an NFP Friday. But over the weekend there was another rise in tensions in the Middle East and at the next weekly open, another war bid to price-in.

The bounce from that low led to a fourth test of resistance, and this time bulls really made their mark with an attempted breakout in early-December; and the inability of buyers to continue the trend has retained the longer-term range that’s now been in-play for three-and-a-half years.

Gold (XAU/USD) Weekly Price Chart

Gold Daily

Taking a slightly shorter-term look at the matter and the strength of that December breakout becomes clearer. It also highlights an aggressive reversal along with the fact that buyers haven’t been able to break much ground above $2,075 since that happened, which has led to a build of both lower-lows and lower-highs. This was continued with last week’s flare up to a test of $2,050 which has led to a fresh 2024 low.

But, at this point, sellers haven’t yet been able to break ground below the $2,000 level and that remains a key line of defense. Below that, the 1975 level remains important and just below that level is the current projection for the 200-day moving average, which offered a strong support response when it was last in-play in mid-November.

The bounce from that level was helped along by the CPI report released on November 14^th, and the support response in December at $1,975 was helped along by the December FOMC rate decision, in which Powell sounded more-dovish than he had earlier in the year, even as the regional banking crisis was flaring.

Collectively, those two events gave bulls the hope that a possible Fed pivot was even closer around the corner; but that hasn’t really materialized yet. And with Treasury Yields rising through early-2024 trade, the question of when that might happen continues to dominate the conversation.

Gold Daily Price Chart

Gold Shorter-Term

While the longer-term range pattern is fairly clear, shorter-term dynamics can remain as a challenge, particularly if there’s a wide-expectation for that range to continue to fill-in. As I’ve discussed in webinars over the past few months, it’s seemed as if gold has shown a proclivity to brew attractive bearish scenarios that don’t quite follow-through. This would be the dreaded bear trap, which makes the prospect of chasing fresh downside breakouts even more daunting as it brings in the possibility of ‘selling the low.’

For gold bears, waiting for resistance has appeared has been a clearer path forward and at the very least, it can allow for greater control of risk management.

On the four-hour chart below, this lack of drive from bears near lows or around the $2,000 level has allowed for the build of a falling wedge formation, accented by an even greater slope on the resistance side of the formation. Such setups are often approached with aim of bullish reversal, but that only comes into the picture if there’s a topside breach of the upper trendline. Into the end of this week, that upper trendline is confluent with the $2,050 level.

There’s another spot of possible resistance around $2,039 and another around $2,032; but if bulls can force a break of the formation there could be another run at the top-end of that longer-term resistance zone.

However, if there is a hold at a lower-high, whether that’s $2,032 or $2,039 or even a confirmed hold at $2,050, the door can remain open for pullback and, perhaps, that first trade below $2,000 in calendar year 2024.

Gold (XAU/USD) Four-Hour Price Chart

--- written by James Stanley, Senior Strategist