Gold forecast: XAU/USD bulls target new record

Gold has been edging closer to record territory, with prices climbing higher for four consecutive weeks. While the October 2024 high of $2,790 remains unbroken, last week’s market movements reveal a complex interplay of factors for gold forecast. On one hand, reduced safe-haven demand provided some resistance to gains, but this was offset by heightened inflation concerns and a weaker US dollar. As central banks prepare for pivotal meetings this week, gold traders are eyeing both fundamental and technical signals. Can gold finally break through to a new record high, or will overbought technical conditions bring a pullback?

Mixed Signals: Reduced Haven Demand?

In recent weeks, gold has navigated a delicate balance between safe-haven appeal and easing market fears. Heightened geopolitical risks and trade tensions have bolstered gold’s attractiveness, but last week’s de-escalation of tariff threats triggered a relief rally in financial markets, potentially dampening demand for haven assets. This dynamic was evident as the yen weakened on Friday, reflecting reduced risk aversion.

However, gold has remained resilient despite prior strength in the dollar and bond yields. If geopolitical risks continue to ease, a period of retracement and consolidation may emerge. Yet, with inflation concerns lingering, gold’s downside could be limited, as investors often turn to the metal as a hedge against rising prices.

Inflation Risks Loom Large

Gold’s historical inverse relationship with the dollar has been less pronounced in recent months. That said, the dollar’s sharp decline, spurred by softer rhetoric on tariffs, lent support to gold prices last week. Despite this, bond yields have begun to recover slightly, suggesting investor scepticism about the Federal Reserve’s ability to bring inflation under control.

This week’s FOMC meeting will be pivotal. If the Fed strikes a hawkish tone or signals limited rate cuts, gold prices may face short-term pressure. Additionally, the upcoming European Central Bank decision will further influence gold’s trajectory. While hawkish surprises could weigh on gold, dip-buyers may find opportunities if prices retreat to key technical levels.

Technical gold forecast: key levels to watch on XAU/USD

Source: TradingView.com

From a technical perspective, the trend on gold price remains bullish, but overbought conditions warrant caution. Immediate support lies in the $2,750 to $2,760 range, with stronger support around $2,710 to $2,725. A failure to hold these levels could signal a deeper correction, potentially altering the bullish narrative.

On the upside, a retest of the October 2024 peak at $2,790 remains the primary target for bulls. A break above this level would likely bring the psychological $2,800 barrier into focus, though profit-taking activity could emerge at this juncture. Traders should closely monitor potential reversal signals, as monthly and weekly charts still indicate overbought conditions.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R

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