Gold Price Forecast: Fundamental Analysis Highlights Further Volatility

XAUUSD 2-hr Price Chart

Gold Price (XAU) Fundamental Forecast: Neutral

  • Risk on market sentiment dulls gold‘s allure.
  • US dollar continues to power higher.

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Gold Hit by Risk-on Sentiment and US Dollar Strength

Gold fell below $1,500/oz. this week and hit a three-month nadir around $1,455/oz. Friday as US dollar strength and a strong risk-on sentiment saw risk-averse asset classes – gold, Japanese Yen and the Swiss France – pushed aside. US stock markets continued to make fresh highs, while bourses in Europe also probed multi-month highs. The move was predicated on news that the US and China were both looking at unwinding some trade tariffs as they seek a resolution to the ongoing trade war that has damaged economic growth across the globe.

However, as has been the case over the last 18 months, nothing new has been formally announced – especially the next meeting between the two sides – with tweets and ‘source stories’ driving sentiment. And with market valuations becoming increasingly stretched, any pullback in sentiment may see risk-on assets come under sharp selling pressure, boosting gold’s allure.

The strength of the US dollar continues to pressure gold lower with the US dollar basket (DXY) reversing sharply higher. While some of this strength can be attributed to the risk-on move, market expectations of a forth US interest rate cut in 2019 have plummeted. A December rate cut is priced at around just 10% while a cut in January is priced around 20%. Reasonably strong US data prints have forced these expectations lower over the last couple of weeks. Last week’s NFPs beat lowly expectations with ease while the closely followed ISM non-manufacturing/services composite also beat expectations and the prior month’s reading.

Next week there are several medium-to-high importance data releases which can make or break the current move in the price of gold. And next Wednesday (November 13), US President Donald Trump will deliver a speech on Trade and Economic Policy in New York, an event that markets will monitor very closely. For a full rundown of all market moving economic data and events please see the DailyFX Calendar

The daily price chart shows gold dropping through a cluster of support levels and both the 20- and 50-day moving average. The price did baulk at an old gap on the August 5 candle, but this may not last. Below here, support will be based of the 200-day moving average and the 50% Fibonacci retracement area around $1,406/oz. Upside price movement may struggle but the market’s are expected to remain volatile.

Gold Price (XAU) Daily Price Chart (March – November 8, 2019)

Daily XAUUSD Price CHart

For a full rundown of all market moving economic data and events please see the DailyFX Calendar

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Traders may be interested in two of our trading guides – Traits of Successful Traders and Top Trading Lessons – while technical analysts are likely to be interested in our latest Elliott Wave Guide.

What is your view on Gold (XAU) – bullish or bearish?? You can let us know via the form at the end of this piece or you can contact the author at nicholas.cawley@ig.comor via Twitter @nickcawley1.

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