Gold forecast: XAU/USD succumbing to yields, dollar strength

Gold resumed its decline this morning after a brief recovery on Monday, extending the slide that began late last week. Unlike Bitcoin, which surged to a fresh all-time high above $107K this week, gold has remained stuck in a range. The metal’s struggles highlight growing expectations that the US Federal Reserve will maintain a more hawkish tone in its upcoming decision. The near-term gold forecast is starting to tilt to the downside ever so slightly.

The US dollar has strengthened, and bond yields are on the rise again, with the US 10-year Treasury yield climbing back to 4.42% this week. Rising yields increase the opportunity cost of holding gold, which offers no yield. Additionally, the crypto rally has diverted attention away from gold as a safe-haven asset, while value stocks have also been under pressure. The Dow has now posted eight straight losing sessions—its longest bearish streak since August 2011—while growth-focused indices like the Nasdaq 100 continue to push higher into unchartered territories. Unless the Fed surprises with dovish signals or China rolls out stronger stimulus measures, gold may remain under pressure in the near term. Today’s US retail sales data release is unlikely to move the needle significantly for gold.

China’s struggles and Lunar New Year implications for gold

Could China, the world’s largest gold consumer, provide some support for the metal? Top Chinese leaders have hinted at stronger stimulus to boost consumer demand, as economic data remains weak. Monday’s numbers showed retail sales growth slowed sharply to 3.0% year-over-year, missing expectations of 5.0% and down from 4.8% previously. Industrial production came in line at 5.4%, but fixed asset investment disappointed at 3.3%. Stimulus measures could lift gold, particularly with the Lunar New Year approaching, a period of heightened jewellery demand due to gifting traditions. However, without substantial measures, jewellery demand looks set to be weaker this season, reflecting broader economic uncertainty.

Technical gold forecast: Key levels to watch

Source: TradingView.com

From a technical perspective, the gold forecast has not turned outright bearish yet. The metal continues to hold its pattern of higher highs and higher lows, but bullish momentum has faded since peaking at $2790 in late October. Gold’s inability to break key resistance at the $2710-$2725 range last week suggests the short-term bias could be tilting to the downside.

Key support levels are now coming into focus. The first major level at $2645, which marked a bullish signal earlier this month, has already been breached today, signalling potential weakness. If buyers fail to step in soon, gold could slide towards $2600 soon, taking out liquidity below the recent low of $2613. The $2600 level aligns with the bullish trend line that has been in place since summer. Below that, the $2580 mark will need to hold to avoid a sharper drop towards $2500.

On the upside, the $2710-$2725 range remains a critical resistance zone where gold has faced significant selling pressure. Given recent price action, a shallower recovery towards lower resistance levels may be more likely, before gold stages another attempt at this zone. So, in the meantime, the $2675 level—which marks the low from last Thursday’s bearish engulfing candle—will be a key resistance to watch for any near-term rebounds.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R