Gold Forecast: Risk rally on Friday causes gold to erase weekly gains

• Gold lost its traction after touching multi-year highs near $1,750.
• Improved market sentiment toward the end of the week caused gold to lose demand.
• Key technical support in the near-term aligns at $1,680.

After closing the previous week with strong gains, the troy ounce of the precious metal extended its rally and touched its highest level since November of 2012 at $1,747 on Tuesday but struggled to preserve its bullish momentum. The XAU/USD pair stayed relatively quiet on Wednesday and Thursday but came under strong bearish pressure on Friday to end the week virtually unchanged around the $1,690 handle.

Coronavirus headlines continue to impact sentiment

On Thursday, US President Donald Trump presented guidelines to reopen the economy while highlighting that it will be a gradual process. "A national shutdown is not a sustainable long-term solution," Trump noted and unveiled the details of the three-phase process, reviving hopes of a return to normality.

Meanwhile, with the latest data from some European countries pointing out to a slowdown in the rate of increase of coronavirus infections and fatalities, European equity indexes posted weekly gains to reflect an upbeat market mood. Additionally, reports suggesting that patients have been responding positively to the experimental drug Remdesivir allowed risk-on flows to continue to dominate the financial markets.  

A Chicago hospital participating in a trial using Remdesivir to treat severe COVID-19 patients said they observed rapid recoveries in fever and respiratory symptoms. 

Although the data from China on Friday revealed that the Chinese economy contracted by 9.8% on a quarterly basis in the first quarter to remind investors of the devastating impact of the coronavirus outbreak, the risk rally remained intact into the weekend.

Next week

There won't be any significant macroeconomic data releases featured in the economic calendar at the beginning of the next week and headlines surrounding the coronavirus crisis are likely to impact gold's valuation through risk perception. The PBoC is scheduled to announce its policy rate during the Asian session on Monday but the market reaction is likely to be muted. 

The IHS Markit's preliminary Manufacturing and Services PMI data from the US for April will be looked upon for fresh clues regarding the coronavirus outbreak's damage to the economic activity. On Friday, Durable Goods Orders and the University of Michigan's Consumer Confidence Index will be watched closely by the market participants as well. Moreover, investors will focus on first-quarter earnings figures from large US firms and Wall Street's reaction.

Technical outlook

On the daily chart, the price continues to float above both the 20-day and the 50-day SMAs. However, the RSI indicator seems to be edging lower toward the 50 mark, suggesting that the bullish momentum is fading away in the near-term. 

The initial support for the pair aligns at $1,680 (Fibonacci 23.6% retracement of the Mar. 20 - Apr. 14 rally). With a daily close below that level, the pair could extend its slide toward $1,660 (Apr.6/Apr.7 daily closing level) and $1,640 (20-day SMA).

However, if the price finds support at $1,680, buyers could look to regain control. On the upside, resistances are located at $1,700 (psychological level), $1,718 (Apr. 17 high) and $1,747 (Apr. 14 high/multi-year high).

Gold sentiment poll

FXStreet's Forecast Poll shows that experts see a rebound toward the $1,700 handle next week. However, both the monthly and quarterly outlook show that the pair is likely to remain indecisive below that level.