Gold outlook XAU USD drops along with US stocks

After starting the week on a stronger footing, gold has taken a drop today, slipping 1.9% alongside US equities. Bonds surged as another disappointing US consumer confidence reading heightened concerns about the health of the world’s largest economy. After last week’s poor University of Michigan survey, today it was the Conference Board’s Consumer Confidence Index posting its largest decline since August 2021, further fuelling fears of an economic slowdown. Despite this setback, the metal hasn’t broken any major levels yet for us to turn tactically bearish on the gold outlook. Its weakness at the start of this week comes on the back of an impressive multi-week rally, causing it to turn extremely overbought on all time frames. With money markets now fully pricing in two quarter-point rate cuts by the Federal Reserve this year, traders are weighing whether gold can sustain much of its recent gains or if a deeper correction is on the horizon. For us, the answer lies on the metal’s ability to hold its own above the key $2877 level.

Gold Holds Ground Amid Economic Worries

The recent US stock market sell-off has been partially driven by a combination of weakening economic data and rising long-term inflation expectations – or put simply, stagflation fears – as well as concerns abouts trade tariffs. Along with the slumping stock markets, gold has taken a dip although its broader bullish trend remains intact for now, although silver and crude oil have not fared as well as concerns over demand intensify.

Gold’s recent resilience in the face of market turbulence suggests that safe-haven demand continues to underpin prices. Persistent geopolitical and trade tensions have prevented aggressive profit-taking and short selling, keeping bullish momentum alive. However, the latest economic data and price action now introduce fresh uncertainty into the mix, particularly as gold remains overbought o the long-term charts and has closely tracked the S&P 500’s moves in recent years (with the latter now on its 4^th day of declines vs. the first day for gold).

Factors that could weigh on gold outlook

A deeper pullback in gold prices wouldn’t come as major surprise, particularly with traders wary of an overheated market. If geopolitical risks start to ease, safe-haven demand for gold may weaken. Furthermore, while the Federal Reserve is now expected to deliver two rate cuts this year, it is worth noting that this was already priced in before the turn of the year, before interest rates were priced higher in more recent weeks. Thus, any delays in monetary easing could provide a headwind for gold.

Technical gold outlook: Key levels to watch on XAU/USD

From a technical standpoint, some key levels are coming into focus with gold’s price drop today. A break below $2900 may well be an early warning that bullish momentum is fading, should the metal hold below this hurdle on a closing basis. A more concerning development would be a decisive drop below $2877, marking the most recent low. If broken, it would create a lower low and potentially trigger a correction of some sort.

Source: TradingView.com

In recent days, the price of gold has struggled to break further higher, with resistance near the $2940–$2950 region holding firm. This area aligns with the 161.8% Fibonacci extension from October’s downswing.

Meanwhile, the Relative Strength Index (RSI) remains overbought across weekly and monthly time frames, though not any longer on the daily thanks to today’s drop in prices. Negative divergence is also forming on those time frames, with the RSI making lower highs while gold prices have hit higher highs. This divergence suggests that bullish momentum may be fading on the higher time frames. However, no clear bearish confirmation has emerged yet, meaning traders remain on watch for a more decisive signal.

On the downside, as mentioned, $2877 remains a key technical support level. A breach below this threshold could shift sentiment and open the door to a more pronounced correction towards the $2790–$2800 range.

Conversely, if gold manages to breach the $2940–$2950 resistance, it could pave the way for further upside, with the psychologically significant $3000 level becoming the next major target. But for now, the most important short-term resistance to watch is at $2921, marking Monday’s low.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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