Gold Price Forecast: Chalks out weekly gain despite dollar strength, market looks bullish

Having eked out a weekly gain despite the dollar strength, gold is looking strong and could rise to the psychological resistance of $1,600 in the next week or two. 

The yellow metal began the year on a positive note, rising as high as $1,611 on Jan. 8 on US-Iran tensions. The bid tone, however, weakened as tensions subsided and prices fell back to $1,548 by Jan. 14. 

Since then, the yellow metal has silently regained poise by rising back to highs above $1,570. At press time, gold is trading at $1,575 per Oz, representing a 1 percent weekly gain. Prices are also up 3.6% on a month-to-date basis. 

What's particularly noteworthy is that both gold and US dollar are reporting a weekly gain. The dollar index, which tracks the value of the greenback, is about to end higher for the third straight week. 

Investors usually pull out money from the gold market during bouts of dollar strength. This time, however, gold has turned a blind eye toward the rise in the greenback. The price action is indicative of the underlying bullish sentiment in the gold market. 

Add to that the persistent coronavirus scare and almost negligible odds of the US Federal Reserve (Fed) raising rates in 2020 and the metal looks primed for a re-test of the psychological resistance of $1,600.

The Fed is widely expected to maintain the status quo on rates and reiterate December’s message that sustained above-target inflation is a prerequisite for rate hikes. That would only bolster the bullish pressures around. 

The bullish case, however, would weaken if key US data – Durable Goods Orders, Personal Spending and fourth-quarter GDP growth rate – beat estimates by a big margin, pushing stocks and other risk assets higher. 

Technical Outlook

Gold has established a higher low at $1,548 with a rounding bottom-like pattern and looks set to challenge $1,600, as suggested by the bull flag breakout confirmed on the hourly line chart on Jan. 15. 

The 14-day relative strength index (RSI) seems to have regained upward trajectory and the daily chart MACD histogram is beginning to trend north (albeit from negative territory). 

Meanwhile, on the weekly chart MACD has crossed above zero in favor of the bulls. 

The bullish view would be aborted if prices print a weekly close under the previous cyclical high of $$1,557.

Gold Forecast Poll

The Forex Forecast Poll is a sentiment tool that highlights near- and medium-term price expectations from leading market experts. As can be seen, the market expects the safe-haven metal to fall back to $1,550 next week and consolidate near that level over the next three months. 

Gold buyers historically come into the market around January time for the lunar New Year and this has been coupled this year with safe-haven bids into gold which saw gold touch above $1600. Any breakdown in the US-China trade war will result in gold buyers immediately entering the market. For next week, I am expecting gold to not move above $1600 without a fresh catalyst.