Gold Weekly Forecast: XAU/USD could extend rebound with a break above $1,850

After starting the week on the back foot and printing fresh multi-month lows, the XAU/USD pair reversed its direction and snapped a three-week losing streak. Fueled by the broad-based USD weakness, the pair gained more than 2.5% on a weekly basis and settled above $1,830 in the late American session on Friday. 

What happened last week

The market mood remained upbeat at the start of the week after the data from China showed that the business activity in both the manufacturing and the service sectors continued to expand at a robust pace in November. Furthermore, heightened hopes for a UK-EU trade deal and coronavirus vaccine optimism allowed risk flows to dominate the financial markets. The precious metal struggled to find demand on Monday and XAU/USD touched its lowest level since late June at $1,764.

On Tuesday, the ISM Manufacturing PMI in the US arrived at 57.5 in November and fell short of the market expectation of 58. However, the risk-positive market environment lifted the S&P 500 and the Nasdaq Composite to fresh all-time highs and caused the greenback to come under heavy selling pressure. With the US Dollar Index (DXY) starting to fall sharply, XAU/USD staged an impressive rebound and gained more than 2% on the day.

In the second half of the week, the USD continued to lose strength and the DXY slumped to its lowest level since April 2018 at 90.51. On Thursday. Meanwhile, the data from the US revealed that the weekly Initial Jobless Claims declined by 75,000 to 712,000 in the week ending November 28th and came in much better than analysts’ estimate of 775,000. Additionally, the IHS Markit’s Services PMI rose to its highest level in more than five years at 58.4. On a negative note, the ISM Services PMI declined to a six-month low of 55.9 but showed that the service sector continued to expand despite the second coronavirus wave in November. The S&P 500 notched a new record high and XAU/USD extended its rebound into a third straight day.

Finally, the US Bureau of Labor Statistics highly-anticipated labour market report on Friday displayed that Nonfarm Payrolls in November increased by 245,000 to miss experts’ forecast of 469,000 by a wide margin. Regardless, Wall Street’s main indexes continued to push higher and XAU/USD erased only a small portion of its weekly upsurge amid profit-taking. 

Next week

On Monday, the Trade Balance report from China will be looked upon for fresh catalysts. If better-than-expected figures trigger a positive reaction in global equity indexes, the USD could continue to have a tough time attracting investors. 

On Tuesday, the Eurostat will release the third-quarter Gross Domestic Product (GDP) growth data, which is expected to print +12.6% on a yearly basis. Nevertheless, investors are likely to ignore this report ahead of the European Central Bank’s (ECB) monetary policy decision on Thursday.

The ECB made it clear that it will be taking action to address low inflation and the loss of momentum in the economic recovery. In the last couple of weeks, ECB officials noted that they were looking to adjust TLTRO and the Pandemic Emergency Purchase Programme (PEPP) with an aim to provide additional stimulus. If the ECB’s policy announcements trigger a significant move in EUR/USD, it could be possible for XAU/USD to show a similar reaction through the shift in the USD’s market valuation.

Later in the week, the Initial Jobless Claims and the Consumer Price Index (CPI) data will be featured in the US economic docket. More importantly, the US Food and Drug Administration (FDA) is expected to announce toward the end of the week whether it grants authorization to the emergency use of Pfizer’s and Moderna’s coronavirus vaccines. A positive outcome is likely to help risk-sensitive assets continue to find demand and hurt the USD. However, gold suffered heavy losses in early November after those companies released their phase three trial results and XAU/USD’s upside could remain limited even if the greenback stays on the back foot.

Gold technical outlook

Tuesday's decisive rebound lifted XAU/USD back above the key $1,800 level (psychological level/200-day SMA) and ramped up the technical buying pressure. As long as the price manages to hold above that level, more buyers could come in and help the bullish momentum gather strength.  

The former support at $1,850, where the Fibonacci 61.8% retracement of the June-August rally is located, currently aligns as the next hurdle. A daily close above that level could open the door for additional gains toward $1,880 (50-day SMA) and $1,900 (psychological level/Fibo 50% retracement).  

On the downside, $1,800 is an important support and the near-term outlook could turn bearish if the price retreats below that level. The next significant support could be seen at $1,725 (the starting point of the June-August uptrend).

Gold sentiment poll

The FXStreet Forecast Poll suggests that experts see the yellow metal carrying the bullish momentum into the end of the year. The average target on a one-week view stands at $1,845, compared to $1,820 in last week's poll. Additionally, the one-month view shows that XAU/USD could close in on the all-important $1,900 area in early 2021.