|

Gold Weekly Forecast: XAU/USD looks to capitalize on safe-haven flows amid Wall Street chaos

  • XAU/USD finished week little changed despite broad USD strength.
  • Gold could edge higher if it continues to hold above 200-day SMA.
  • Wall Street chaos could help gold reclaim its safe-haven status.

After gaining more than 1% in the previous week, the XAU/USD pair struggled to preserve its bullish momentum and edged lower during the first half of the week. Although the pair staged a rebound and rose above $1,860 on Thursday from the weekly low it set at $1,831 on Wednesday, it couldn't close the day in the positive territory. With buyers remaining in control on Friday, the pair closed the week virtually flat slightly above $1,850.

What happened last week 

On Monday, the disappointing IFO sentiment data from Germany weighed on the market sentiment and allowed the greenback to start the week on a firm footing. On Tuesday, the better-than-expected Conference Board Consumer Confidence Index reading in the US and some strong quarterly earnings figures from key firms helped risk flows return to markets but failed to pave the way for a convincing rebound in XAU/USD. 

On Wednesday, a Bloomberg report claiming that the European Central Bank (ECB) officials were uncomfortable about markets underestimating the usage of a rate cut as a policy tool triggered a sharp drop in the EUR/USD pair and provided an additional boost to the USD. The broad-based greenback strength dragged XAU/USD to $1,831 mid-week. Meanwhile, FOMC Chairman Jerome Powell refrained from delivering any surprising remarks on the policy outlook after the US Federal Reserve left its policy rate unchanged as anticipated.

On Thursday, the US Bureau of Economic Analysis advance estimate showed that the real Gross Domestic Product (GDP) expanded by 4% on a yearly basis in the fourth quarter as expected. On a positive note, the weekly Initial Jobless Claims declined by 67,000 to 847,000 in the week ending January 23. 

Finally, the last data releases of the week from the US revealed that Personal Income increased by 0.6% in December but Personal Spending fell by 0.2% in the same period. 

On coronavirus-related headlines, Johnson & Johnson announced on Friday that its coronavirus vaccine was 66% effective in the global trial. 

Despite the short-term impact of those key data releases on risk perception and the USD’s market valuation, the chaos in Wall Street became the primary driver of financial markets throughout the week. 

Day traders used social media platforms to organize a mass movement to buy several stocks, most notably GameStop and AMC Entertainment Holdings, that were widely known to be shorted by large hedge funds in the US. The unprecedented upsurge witnessed in those stocks caused large investment firms to suffer heavy losses and triggered a flight-to-safety in the financial markets on Wednesday, lifting the USD and dragging XAU/USD. 

On Thursday, several brokers, which were used to purchase those shares, restricted trading and Wall Street's main indexes closed higher amid a relief rally. Nevertheless, a huge backlash followed this development and US stocks finished the week on the back foot. Gold, on the other hand, gave signals that it started to recapture its safe-haven status with the XAU/USD pair posting strong gains on Friday. 

Next week

At the start of the week, the Manufacturing PMI data from China, Germany and the US will be looked upon for fresh impetus. The business activity in those major economies' manufacturing sectors are expected to continue to expand into the new year and the market reaction is likely to remain limited. Additionally, Germany's Destatis will publish December Retail Sales data on Monday. 

On Wednesday, the ADP Employment Change data will be featured in the US economic docket ahead of Friday's critical Nonfarm Payrolls (NFP) report. The market consensus points out to an increase of 85K in NFP in January. A gloomy labour market report could assist the USD to attract investors.

 More importantly, investors will keep a close eye on the performance of major equity indexes in the US. A panic selloff in US stocks amid heightened concerns over a market bubble could lift gold higher as seen at the start of the coronavirus crisis.

Gold technical outlook

Following Friday's climb, the Relative Strength Index (RSI) indicator on the daily chart rose above 50, confirming that buyers continue to show interest in gold. However, the sharp retreat from the 100-day SMA, currently located at $1,878, suggests that sellers continue to defend this level. XAU/USD could have a difficult time pushing higher unless it manages to make a daily close above that hurdle.

Ahead of $1,878, $1,870 (Fibonacci 50% retracement of December rally) aligns as an interim resistance. Above $1,878, $1,890 (Fibonacci 38.2% retracement) could be set as the next target.

On the downside, the 200-day SMA seems to have formed key support at $1,851. If XAU/USD drops below that level, buyers could look to defend $1,845 (Fibonacci 6.8% retracement) before the price can test $1,831 (Jan. 27 low).

Gold sentiment poll

The slight positive shift seen in the technical outlook is also reflected in the FXStreet Forecast Poll, which shows that 67% of experts are bullish with an average target of $1,868 on a one-week view. The one-month view paints a more mixed picture with 60% bearishness and a price target of $1,854. 

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 keeps range near mid-0.7100s as USD bulls await US CPI

AUD/USD steadies near mid-0.7100s in the Asian session on Friday, stalling the previous day's sharp decline to an over one-week low. The August PPI report reaffirmed Fed rate-hike bets and boosted the US Dollar on Thursday, which weighed heavily on the pair. However, hawkish RBA expectations limited losses for the Aussie as USD bulls now await the release of the US consumer inflation figures before placing fresh bets.

USD/JPY holds lower ground toward 154.00; looks to US CPI

USD/JPY holds lower ground toward 154.00 in the Asian session on Friday after hot Japanese PPI data bolster a more hawkish BoJ repricing and provide fresh impetus to the Japanese Yen. However, the downside appears capped as the US Dollar preserves overnight gains ahead of the latest US consumer inflation data.

Gold: Gains remain capped by $4,400

Gold regains composure and trades with decent gains on Friday, managing to refocus attention on the $4,440 mark per ounce troy. Therefore, the precious metal reverses Thursday’s decline as the US Dollar alternates gains with losses at the end of the week.

Ripple Price Forecast: XRP extends decline as returning ETF inflows fail to lift outlook
Ripple (XRP) falls below $1.33 on Friday, marking the third consecutive day of declines. The token continues to track the broader cryptocurrency market downturn, with investors closely monitoring heightened macroeconomic uncertainty ahead of the United States (US) Consumer Price Index (CPI) release and next week’s Federal Reserve (Fed) monetary policy decision.
Weekly focus – The hawks set the tone
Risky assets came under pressure this week as energy prices kept creeping higher and the ECB surprised the markets with a hawkish tone. The price of Brent crude touched USD 110 per barrel on Thursday night, highest since mid-May, as news emerged that the Yemeni Houthis had reached control of key port cities and islands near the Bab el-Mandeb strait.
Venezuela’s 65-billion-barrel Oil deal could reshape America’s inflation fight
The United States (US) has secured unprecedented access to part of Venezuela’s vast Oil reserves. The timing is particularly significant as the war with Iran is disrupting Middle Eastern supplies, keeping energy prices elevated and reviving concerns about inflation.