Gold Price Forecast: Indecisive market at the mercy of US dollar

Gold is about to end the week on a flat note, having clocked a high and low of $1,212 and $1,187, respectively.

Essentially, the yellow metal has charted a doji candle on the weekly chart, which indicates indecision in the markets. This lack of clear direction is not surprising as gold's biggest enemy - the US dollar - is trapped in ranges on trade wars and risk-on-risk-of. 

For instance, the dollar index (DXY) witnessed an inverse head-and-shoulder breakout yesterday, only to trap the bears on the wrong side of the market, by rising back to 95.00. The USD seems to have picked up a safe-haven bid on US' decision to widen tariffs on Chinese goods by $200bln. 

The metal could continue its struggle for direction next week unless the USD sees a decisive move in either direction. 

Key price action during the week

Failed breakout: The falling wedge breakout witnessed on Wednesday had signaled a resumption of the rally from the recent low of $1,160. However, the yellow metal ran into offers around 50-day moving average (MA) yesterday and has fallen back inside the falling wedge, neutralizing the bullish outlook.

Rejection at 50-day MA: The descending (bearish) 50-day MA is the level to beat for the bulls as it acted as a stiff resistance this week, killing the bullish move set in motion by the falling wedge breakout.

Bollinger band squeeze: The gap between the Bollinger bands (standard deviation of +2, -2 on 20-period MA) has narrowed to three-month lows on the daily chart, meaning the daily volatility is at its lowest since mid-June. An extended period of low volatility usually paves way for a violent breakout (bullish/bearish). As a result, it seems safe to say that the yellow metal could soon witness a big move. Note that the direction of the breakout depends on the next big move in the dollar index.

Technically speaking, a close next Friday above this week's doji candle high of $1,212 would signal a revival of the rally from the August low of $1,160 and could yield a stronger rally above $1,236 (December 2017 low).

On the other hand, a re-test of $1,160 could be on the cards if the metal ends below $1,187 next Friday, adding credence to the failed breakout seen this week.

To cut the long story short, the focus is on the next week's doji candle. 

Weekly chart

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.