Gold Price Forecast: Risks skewed to the upside after bounce from key support

• Gold's strong bounce from key average has invalidated the bearish case. 
• Gulf tensions will likely keep the metal better bid next week. 
• Hawkish Fed rate cut and easing US-China trade tensions may cap upside around $1,525.

Gold is about to end the week on a positive note, having bounced strongly from key support and could challenge resistance at $1,524 next week. 

The yellow metal is currently trading at $1,510 per Oz, representing 1.48% gains on Monday’s opening of price $1,488. Prices fell 0.42, 0.90 and 1.2% in the previous three weeks. 

The safe-haven metal was looking weak last Friday with charts favoring a deeper drop to levels below $1,480. 

Gold, however, picked up a bid on Monday and printed highs above $1,500, as an attack on Saudi’s oil facilities triggered a wave of risk aversion, sending safe havens higher. The metal remained flat-lined around $1,500 on Tuesday before falling to $1,483 on Wednesday after the Federal Reserve (Fed) delivered a hawkish rate cut. 

The post-Fed drop, however, was short-lived and prices bounced up strongly from the 5-week moving average support of $1,483 to $1,500 on Thursday and have found acceptance above $1,500 at press time. 

Gold’s rebound from the post-Fed low could be associated with the drop in the US yields. Notably, the 10-year yield is currently trading at 1.75% – down 25 basis points from the previous week’s high of 1.90%. 

Also, escalating tensions in the gulf likely put a haven bid under gold. Iran on Thursday warned of an all-out war if attacked by the US or Saudi Arabia. The US has accused Iran of attacking Saudi oil facilities and President has announced a new round of sanctions against Iran’s national bank. 

Looking forward

Gulf tensions will likely keep Gold better bid next week. The gains, however, could be capped around Sept. 12’s high of $1,524 by the US-China trade optimism. President Trump on Friday said that his administration was making a lot of progress with China and lifted tariffs on over 400 Chinese products, according to Reuters. 

Further, an above-forecast US Personal Spending (Aug) and Core Personal Expenditure (PCE) price index could weigh over the safe-haven metal. Note that the Fed cut rates by 25 basis points on Sept. 18 but the officials were split on the need for further easing in the near-term. 

As a result, many observers are convinced that the Fed would stand pat for the rest of the year. That narrative would become entrenched in the market if the US Personal Spending data, due on Friday, blows past expectations.

The final reading for the US second-quarter Gross Domestic Product (GDP) will be released on Thursday. That backward-looking data will likely be ignored by markets unless there is a significant upward or downward revision to estimates released last month. Also, note that gold may take a beating if the gulf tensions ease.

Technical Outlook

The solid recovery from the 10-week moving average has reinforced the bullish view put forward by that ascending line. 

Further, the 4-hour chart is reporting a pennant breakout – a sign the pullback from recent highs above $1,550 has ended and prices could test resistance at $1,524. A daily close above that level will invalidate Sept. 12’s Doji candle and could yield rise to $1,557. 

The outlook would turn bearish if the pair finds acceptance below the 50-day MA, which is now sidelined near $1,484. 

Weekly chart

4-hour chart

Daily chart