Gold Price Forecast: XAU/USD Finally Pulls Back - How Far Can it Run?

Gold Talking Points:

• Gold rode an astounding trend-higher for much of Q3 but as USD strength has re-appeared at the Q4 open, gold has finally started to pull back.
• At this point XAU/USD hasn’t yet re-tested the 2600 level which was a key inflection of resistance after the FOMC rate decision. But – the reaction to that resistance was quickly bid at 2550, leading to extension of the bullish move. This brings on question for how long the pullback might last and how aggressive bulls might remain to be.

Gold prices held their ground well last week even as we saw a swell of US Dollar strength. But this week has finally started to show some element of pullback in a trend that hasn’t done much of that over the past couple of months. And bigger picture, it’s been a massively strong year for gold prices as markets prepped for the onset of rate cuts from the FOMC.

This pullback started just ahead of yesterday’s webinar and as I shared then, the 2600 spot was clearly delineated on the chart as a spot of prior resistance. There’s also a trendline projection in this area, taken from August and September swing lows. That price almost came into play yesterday before a bounce showed, but the prior swing low of 2622 capped resistance, leading to another push-lower this morning.

Spot Gold (XAU/USD) Daily Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Shorter-Term

Going down to the hourly chart, we can see where bulls tried to run with the bounce above 2600 yesterday but failed to break much ground above 2622. But, notably – so far bulls have defended the prior swing low at 2602.57 which, itself, was a higher-low as buyers wouldn’t even allow for re-test of 2600 after the FOMC reaction. So, we can’t quite say that bulls are out of it until or unless that structure is broken through.

On that same token, for bulls to re-take control of gold price action they’re going to need to chew through that 2622 level after which 2635 comes back into the picture. If that can trade, then there would be a short-term higher-high to work with, re-opening the door for higher-low support at 2622.

Spot Gold (XAU/USD) Hourly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

Gold Bigger Picture

Given the size of the USD breakout so far in Q4 along with what’s been driving it, the prospect of slower or perhaps even fewer rate cuts from the Fed, we have to at least entertain the counter-scenario. And also the overbought nature of gold on both monthly and weekly charts. There’s even a case of RSI divergence on the weekly as price has jumped to a higher-high this year while RSI set a lower-high, and on the weekly, RSI is nearing a cross of the 70-level.

So there could be potential for a deeper pullback, particularly if tomorrow’s CPI report comes out hot. It’s been headline CPI that’s allowed the Fed to lean dovish, even as Core PCE and Core CPI have shown signs of stalling, going along with the strong NFP report from last Friday.

So, if we do get that deeper pullback scenario, there’s a lot of prior structure to work from. Below 2600, I’m tracking a prior swing at 2588 before prior post-FOMC support comes into the picture at 2550. And even 2500 could be in-play as this was a level of resistance that still has yet to see much for support. If gold can drive all the way down to that, it would be a big test for long-term bulls and those tests at psychological levels have been a big part of the broader bullish trend this year. The 2300 level was support through much of Q2 and even 2400 showed support-turned-resistance.

From a technical backdrop, there’s a number of factors pointing to larger pullback potential. But there have been a few of those cases in gold this year yet buyers have continued to stand tall in the face of counter-trend scenarios.

Spot Gold (XAU/USD) Weekly Price Chart

Chart prepared by James Stanley; data derived from Tradingview

--- written by James Stanley, Senior Strategist