|

Gold Weekly Forecast: 200-day SMA last line of defense for XAU/USD ahead of $1,800

  • XAU/USD lost nearly 3% on a weekly basis.
  • USD gathered strength supported by surging US T-bond yields.
  • Gold could post additional losses with a daily close below $1,840.

The XAU/USD pair started the new year on a firm footing and rose more than 2% on the first trading day of 2021. The pair preserved its bullish momentum during the first half of the week and touched its highest level in nearly two months at $1,959 on Wednesday. However, gold staged a sharp U-turn and closed the week with heavy losses below $1,850 as the sharp decline amid rising US Treasury bond yields dragged the price below key support levels and triggered additional technical selloffs.

What happened last week

The selling pressure surrounding the greenback that intensified in the last week of 2020 remained intact earlier in the week and helped XAU/USD push higher. The US Dollar Index (DXY), which tracks the USD’s performance against a basket of six major currencies, slumped to its worst level in more than two years at 89.20 on Wednesday to reflect the broad-based USD weakness.

However, the buck gathered strength in the second half of the week on the back of soaring US Treasury bond yields and forced XAU/USD to reverse its direction.

With the runoff election in Georgia paving the way for a Democratic majority in the US Senate, investors started to price in additional government spending. The initial market reaction provided a boost to US stocks as well as Treasury bond yields. The benchmark 10-year US T-bond yield rose more than 15% in the last three trading days of the week and marked its highest level since March at 1.124% on Friday. The DXY capitalized on surging yields and advanced beyond 90.00 for the first time in a week.

Meanwhile, key macroeconomic data releases from the US painted a mixed picture. The ISM Manufacturing PMI in December came in at 60.7 to show that the business activity in the US manufacturing sector expanded at its strongest pace since August 2018. Similarly, the ISM Services PMI improved to 57.2 from 55.9 in November and beat the market expectation of 54.9 by a wide margin.

On a negative note, the monthly report published by the Automatic Data Processing (ADP) Research Institue revealed that employment in the private sector declined by 123,000 in December. Finally, the US Bureau of Labor Statistics' monthly report showed that Nonfarm Payrolls in the US declined by 140,000 and the Unemployment Rate remained unchanged at 6.7%. 

The Federal Reserve’s December Minutes didn’t offer any surprises or fresh insights into the policy outlook. Policymakers reiterated that they could assess potential changes to the duration or the amount of asset purchases if needed while pointing out that the path of the economy depends on the course of the virus.

Next week

The Consumer Price Index (CPI) report from the US on Wednesday will be the first significant data that could impact the USD’s market valuation. Although the Fed uses the Personal Consumption Expenditures (PCE) Price Index as its preferred gauge of inflation, a lower-than-expected reading could hurt the greenback.

On Thursday, Retail Sales and Initial Jobless Claims figures from the US will be looked upon for fresh catalysts. Finally, fourth-quarter GDP data will be featured in the Chinese economic docket on Friday ahead of the University of Michigan’s US Consumer Sentiment Index. Nevertheless, investors will keep a close eye on the performance of US T-bond yields and XAU/USD could find it difficult to turn north if yields continue to edge higher. 

Gold technical outlook

The ascending trend line coming from early December acted as strong support on Wednesday and Thursday. However, Friday's selloff caused the price to break below that line on its way to a fresh two-week low of $1,839. During that move, XAU/USD cleared the 100, 20 and 50-day SMA levels as well. Moreover, the Relative Strength Index (RSI) indicator on the daily chart slumped to 40, confirming the bearish shift and suggesting that there is more room on the downside before the pair becomes technically oversold. 

On the downside, the 200-day SMA at $1,840 aligns as the next critical support. With a daily close below that level, the price could target $1,820 (static support) ahead of $1,800 (psychological level/static support).

Resistances, on the other hand, could be seen at $1,870 (50-day SMA), $1,890 (100-day SMA) and $1,900 (psychological level). 

Gold sentiment poll

Despite the near-term bearish outlook, the FXStreet Forecast Poll shows that experts see gold rebounding above $1,900 next week. The one-month outlook paints a mixed picture with an average price target of $1,893.

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

More from Eren Sengezer
Share:

Editor's Picks

AUD/USD hangs near three-week low, below 0.6950 as traders await US NFP report

AUD/USD hits a three-week low during the Asian session on Friday as the RBA’s dovish shift and a rout in equity markets weigh on the risk-sensitive Aussie. However, the recent slump in US bond yields to a two-month low keeps US Dollar bulls on the back foot and limits losses for the currency pair as traders look to the US NFP report for a fresh impetus.

USD/JPY bounces off three-week low; keeps the red near 157.65 as focus remains on US NFP

USD/JPY bounces off the weekly low set during the Asian session, as bears turn cautious ahead of the US NFP report due later this Friday. The upside seems limited as the recent slump in US bond yields and hopes of Iran war de-escalation undermine the US Dollar. Moreover, a hawkish BoJ and intervention risks support the Japanese Yen, capping the pair.

Gold loses the grip; $4,000 comes next on the downside

Gold sets aside two daily advances in a row on Friday, opening the door to a potential test of the key $4,000 mark per troy ounce. The precious metal’s retracement follows a decent improvement in the sentiment surrounding the US Dollar, solid NFP data and higher US Treasury yields across the board.

Democrats win House and Senate in US midterms: Why isn’t all bad news for crypto

The biggest story this week was Tuesday’s US midterm elections, which saw Democrats win control of both the House and the Senate in a clear blue wave. This political shift in the US has triggered sharp price swings across the cryptocurrency market.

Week ahead – Inflation and geopolitics in focus as US political landscape shifts

Post-midterm election euphoria fizzles out as risk aversion prevails. US CPI, PPI and Fedspeak on the radar as Fed hike bets remain supported. Oil retreat pauses on mixed hopes about the ongoing conflicts.

US Dollar breaks below 101.50 as Democrats sweep Congress
The US Dollar (USD) comes under heavy selling pressure on Wednesday, with the US Dollar Index (DXY) falling around 0.5% to trade near 101.35 after sliding below the 101.50 level. The Greenback retreats to its lowest level in four weeks as investors reassess the political and economic outlook following the Democratic Party's sweeping victory in the United States (US) midterm elections.