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Gold Price Forecast: XAU/USD Bulls to Face Critical Fibonacci Level

Gold Price Forecast: XAU/USD Bulls to Face Critical Fibonacci Level

Daniela Sabin Hathorn, Analyst

Key Talking Points:

  • XAU/USD is holding above $1,750, could be up for a re-test of 50% Fibonacci
  • Fundamental outlook remains pretty weak for gold

It’s been an interesting week for gold (XAU/USD) so far. It started the week with a flash crash, dropping 4.5% at the Asia open on Sunday night and then bouncing back 3.6% at the European open, dropping to a 15-month low of $1,662 and finishing the day at $1,730. This was likely due to an extension of the reaction to Friday’s NFP data, which saw an all-rounded beat on expectations.

The precious metal then saw some indecision in Tuesday’s session as investors were left trying to figure out what was the best course of action going forward, but yesterday’s inflation data from the US saw confidence brought back for gold bulls. The CPI data saw prices creep up 0.5% in July, with a 5.4% rise year on year. This data was mostly in line with expectations, which was somewhat of a disappointment for markets who had been positioned for a strong beat, bringing the US Dollar down from its 5-day bullish run.

The challenge now remains around the 50% Fibonacci at $1,752, which has been a problematic area in the past. The area around $1,760/65 is going to be key for buyers to overcome if they want to consolidate back towards $1,800.

XAU/USD Daily chart

Gold Price Forecast: XAU/USD Bulls to Face Critical Fibonacci Level

The outlook for gold remains pretty weak going forward. It kind of feels like XAU/USD has been exhausted as it wasn’t able to thrive in the best conditions for it, with ultra-low real yields and very accommodative central bank policy. These factors are now set to change over the next few months as central banks start scaling back their economic support, which is not a good environment for gold, which had been acting as a hedge against central bank inaction and had managed to pick up some momentum during the months of April and May, but an array of more hawkish messages from Fed speakers has left the precious metal without some of its shine. So the question is, how is gold going to pick up bullish momentum now if it wasn’t able to perform when conditions were at their best?

There is some speculation that other more attractive assets may have been the main reason for gold getting less attention, namely Bitcoin, with investors preferring to put their money elsewhere as gold was severely underperforming. This has also been taunted as a possibility for Gold’s flash crash on Sunday, as crypto traders sacrifice gold positions to build up Bitcoin, which has benefitted from weaker gold prices.

XAU/USD Monthly chart

Gold Price Forecast: XAU/USD Bulls to Face Critical Fibonacci Level

Looking at the monthly chart, so far August hasn’t offered the best performance for gold, which is down roughly 3% from the close of July. It was down 9% at the beginning of the week so the commodity has done some progress in the last few sessions, but the momentum indicators are still struggling to show any bullish bias, with the Stochastic sitting at 44 and the RSI wobbling around its centerline.

Fibonacci Confluence on FX Pairs

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--- Written by Daniela Sabin Hathorn, Market Analyst

Follow Daniela on Twitter @HathornSabin

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