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Gold Price Forecast: Bulls could be throwing in the towel here

Update: The price of gold has stalled at the start of the week which could encourage the bulls to take profits in anticipation of a significant correction to test prior resistance on the daily chart. At the time of writing, gold is losing over 0.20% and has dropped to test the low of $1,860.99 so far. $1,860 is a key level on the hourly chart:

A break of the horizontal support will expose the dynamic trendline and then prospects of a run into the 1,830 enhancement area will be on the cards. 

End of update

The US dollar was mixed against the G10 last Friday and gold recorded its biggest weekly gain in more than six months, following last week's inflation report in the US. XAU/USD rallied to $1,868 as the greenback fell from its 95.265 highs on the back of concerns among consumers. The November University of Michigan Consumer Sentiment survey surprised with a slump to a 10-year low as consumers fret over rising prices.

The spectre of higher entrenched inflation saw investor demand surge and the breakout in the yellow has also attracted new buyers as global markets search for inflation hedges. The sentiment is likely to stick around for the foreseeable future. the Bureau of Labor Statistics announced that consumer prices in the United States rose 6.2% over the past year. However, this is not a uniquely US phenomenon.

Eurostat, the statistical agency of the European Union, has released a flash estimate for annual inflation in the euro area and like the US report, this estimate showed inflation surging beyond what has been considered the norm. The data has come in at 4.1% in a preliminary estimate based on incomplete data, considerably lower than the US rate. In fact, the world's four largest economies - the US (highest in 30 years), China, Japan (highest in more than 40-years) and Germany - have all reported record inflation numbers for October. Economists, politicians, Central Bank leaders had been insisting that the current inflation is temporary, but the markets seem to think otherwise, and that is bullish for gold. 

One of the worst inflation calls ever by the Fed

We have already started to see policymakers back off from the transitory mantra but there is still a lot of work to do on the labour recovery, so there needs to be a fine balance in the communication in the past pandemic recovery. However, there are economists out there who are far more concerned. Mohamed El-Erian, for instance, a chief economic adviser at Allianz SE, says this will go down in history as one of the worst inflation calls ever by the Federal Reserve. He doesn't think inflation will come down anytime soon and the concern is that the time between ending the taper and interest rate hikes is not going to be significant and that they will have to raise rates much faster, tapping on the breaks at the wrong time. In this regard, for the week ahead, the bond markets and US yields are going to matter for the gold price.

Gold technical analysis

The above link is a contrarian view of the current trajectory of the price in anticipation of a healthy bearish correction. 

In this daily chart, it is illustrated that the price is reaching a critical level of resistance and a pullback could be expected towards the prior daily highs where a 38.2% Fibonacci retracement can be found near the $1,830s.

Author

Ross J Burland

Ross J Burland, born in England, UK, is a sportsman at heart. He played Rugby and Judo for his county, Kent and the South East of England Rugby team.

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