Gold Forecast: XAU/USD Stalls Inside of $2900, $3k Looms Large

Gold Talking Points:

• Much of last year saw gold prices in a blistering rally, rising by as much as 40% from the February lows to the October highs.
• The advance finally met its match at the 2800 handle, as bulls stalled before a test of the level in October and failed to get above that price until late-January.
• The breakout at 2800 has so far been fast and aggressive, but something similar is now happening at $2900/oz, as buyers have stalled, and prices are pulling back. And naturally, the $3k level presents something of a quandary overhead, explained further below.

It’s been a strong past year for gold and if we draw back to mid-February of last year, that was the last test of the $2k handle that we’ve seen in the precious metal. At the time there was legitimate concern that the Fed might not be able to cut rates in 2024, and an above-expected CPI print on February 13^th triggered that concern.

On the back of that inflation print spot gold prices sank below the $2k level for the first time in 2024, but the move would prove to be short lived as the following day, on the 14^th, a doji appeared on the heels of a dovish comment from Chicago Fed President Austan Goolsbee, who seemingly shrugged off the inflation print which markets read to mean that the Fed still may cut later that year.

The day after gold broke out above the $2,000/oz level and never looked back. There hasn’t been another instance of gold trading below that level ever since, and now, gold prices are nearing the next major psychological level of $3,000/oz.

Gold Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Big Figures

It can be difficult to imagine anything other than a trend when that trend has been so strongly in-force for any length of time. Such was the case back in the summer of 2020, when gold prices were rallying aggressively on the back of the Fed’s response to the Covid pandemic.

That’s what brought the first ever test of $2,000/oz, and it happened so quickly that it seemed most were afraid to sell. The break of $2k was a violent affair, as there was virtually no resistance on the daily chart when the breakout initially took place. Bulls even tried to run with the trend, eventually getting as high as $2,075 on Friday of that same week; but that’s also when they started to fail.

A sizable pullback developed on that Friday but it was the next Tuesday, one week to the day of the $2k break that gold really started to sell-off. And just a day later that pullback had taken on an entirely new form, with gold prices setting a low of $1863/oz.

From the monthly chart the patterning is a bit clearer, as this was essentially just a false breakout at the $2k level. But – for the next three-and-a-half years, that resistance remained as the spot that bulls just could not leave behind – even with the monetary mayhem developing around global central banks.

Bitcoin is often pointed to as a factor and to be sure, it likely played a role as an alternative for anti-fiat flows. At the first test of $2k in spot gold in August of 2020, Bitcoin was still struggling to get back above $12k. A mere eight months later Bitcoin was trading at $69k so, logically, some of the capital flow that traditionally would’ve went to gold was directed towards cryptocurrencies.

But – this doesn’t explain the three, almost four-year struggle that bulls had at the $2k level in Gold.

Gold Monthly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Shorter-Term: Accumulation v/s Distribution

Last year, especially in the second-half when the bullish trend in gold was already priced-in for a few months, there was a tendency for gold prices to stall or slow around each test of a new major psychological level.

As a case in point, it was the start of the FOMC rate cut cycle in September that finally brought that first test of $2600 – but that didn’t last for long, as the press conference after the announcement saw a stern $50-plus drop. This appeared to have been profit taking but bulls were still aggressive, which is why higher-low support showed up and buyers simply pressed ahead.

From that rally we saw a stalling effect ahead of a test of $2700, which led to another sizable pullback before buyers showed support above $2600, and then the same happened at $2800 as buyers pulled up just about $10 shy of the level to set a high in late-October.

That’s finally where the gold bullish trend in 2024 met its match, and the next two months saw digestion of the prior trend as prices built in a symmetrical triangle formation that held into the end of the year. There was also the Bitcoin effect at-play, as the post-election backdrop brought a massive rally in cryptocurrencies and along the way gold prices were on their back foot.

This was a fairly clear-cut case of distribution following a year of mostly accumulation – but it also didn’t indicate that a larger reversal was afoot as buyers showed higher-lows in December.

Gold Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Shorter-Term Strategy

Something happened after the December FOMC meeting.

On the day of that announcement, when the Fed suddenly sounded less-dovish than they had in a long time, gold prices had sold off to test below that same $2600 level that was resistance at the September rate cut. But the day after that same support held, and bulls slowly started to come back into the picture.

It was mid-January when gold finally broke out of the symmetrical triangle formation which, when meshed against the prior bullish trend, made for a bull pennant formation.

And that trend in gold has been rather smooth ever since, all the way until this week’s push of a fresh all-time-high, just inside of the $2,900 level.

While I do think there’s impact from buyers showing trepidation of testing a new, major psychological level – I think there’s also impact of the price that hasn’t yet come into the picture and that’s the $3k handle. Because from both bullish and bearish perspectives, a level of that nature could be at trend-changer, at least for the short-term.

If already long, then getting closer to $3k could be incentivization to take profit. If not already long, it could be a hindrance to adding exposure. And, if bearish, getting closer to that level could start to justify counter-trend stances, opening the door for reversal plays given that there’s a theoretical line-in-the-sand at which stop loss orders could be placed.

And, after all, a level like $3k doesn’t have to come into play before it starts to tilt the flow, as we can see from the drama around the $2k level. Sure, it was resistance for almost four years, even as the Fed was in their most dovish stance in history – but it also loomed large back in 2011, when spot gold prices topped at $1,920 before ultimately reversing. That high held for the next nine years, all the way until Covid and the next exuberant Fed response.

So there could be the making of a major top at-play. Short-term price action doesn’t suggest as such yet, as we just made a fresh all-time-high yesterday and the move that we’re seeing now is likely at least somewhat related to profit taking following a smooth bullish trend.

But – as noted a little higher, nearing a $3k test for the first time in history is where price flow dynamics in gold can begin to shift, and traders on both sides of the move need to be aware of that potential.

For now – support potential remains at $2825-$2830, after which $2800-$2804 comes into the picture. If bears can drive a weekly close below that $2800 price, then a larger reversal thesis could begin to take on more attraction.

Gold Four-Hour Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist