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Gold Price Forecast: Precious Metal Backs off Resistance, Pauses Break Out

Gold Price Forecast: Precious Metal Backs off Resistance, Pauses Break Out

2020-10-07 20:00:00
Peter Hanks, Analyst
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Gold Price Outlook:

  • Gold fell alongside stocks and other risk assets on Tuesday following President Trump’s Tweet
  • The move saw XAU/USD back off technical resistance around the $1,921 mark
  • Now in the midst of its broader technical pattern, gold could trade sideways as it searches for catalysts

Gold Price Forecast: Precious Metal Backs off Resistance, Pauses Break Out

After an upbeat start to the week, gold prices were headed toward resistance around the $1,921 level until a surprise announcement sent the precious metal reeling. News that a second round of covid-related stimulus would have to wait until after the election shook risk appetite on Tuesday, but it also dealt a blow to gold. After President Trump seemed to soften on his prior stance, the Dow Jones, Nasdaq 100 and S&P 500 lurched into recovery mode. Gold, however, has not been convinced.

Gold (XAU/USD) Price Chart: 4 – Hour Time Frame (July 2020 - October 2020)

gold price chart

As a result, gold remains beneath Tuesday’s highs and, perhaps more importantly, within a descending wedge pattern. Last week we outlined $1,921 as an area of confluent resistance standing in the way of a break out and subsequent continuation higher and this week gold suffered a fundamental blow just as price had attempted to probe the level.

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Evidently, the coincidental alignment of technical and fundamental forces undermined the precious metal and it’s lackluster recovery could suggest further consolidation is necessary before another attack higher. Since scheduled event risk is rather underwhelming in the near future, the consolidatory period could be prolonged if broader market volatility slips into a lull.

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Either way, it looks as though a gold break out has been put on pause for the time being. Consequently, gold could seep lower to test support around the $1,850 level. Should price remain beneath the descending trendline derived from the metal’s August high, the resultant descending wedge pattern would suggest an eventual break higher. While a catalyst would be required for such a move, gold’s medium and longer-term outlooks remain encouraging. In the meantime, follow @PeterHanksFX on Twitter for updates and analysis.

--Written by Peter Hanks, Strategist for DailyFX.com

Contact and follow Peter on Twitter @PeterHanksFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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