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Gold Weekly Forecast: XAU/USD corrects lower after setting new record-high

26 Oct 2024

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 overview

  • Gold (XAU/USD) continued its upward trajectory, achieving a new record high exceeding $2,750. However, the increasing yields on US Treasury bonds and a more favorable risk sentiment posed challenges for the precious metal in maintaining its bullish trend during the latter part of the week. Next week, the US economic calendar will include third-quarter Gross Domestic Product (GDP) data and labor market statistics for October, both of which could have a substantial impact on Gold's valuation.
  • Gold experienced an increase at the beginning of the week, following the People's Bank of China's (PBoC) announcement to reduce the one-year Loan Prime Rate (LPR) by 25 basis points (bps), lowering it from 3.35% to 3.10%. This move alleviated worries regarding a potential economic slowdown. Furthermore, rising geopolitical tensions contributed to heightened safe-haven demand for the precious metal on Monday, as market participants responded to reports of Hezbollah taking responsibility for a drone strike aimed at Israeli Prime Minister Benjamin Netanyahu's residence over the weekend.
  • XAU/USD maintained its upward trajectory on Tuesday, experiencing an increase of over 1% throughout the day. In the absence of significant data releases, Gold capitalized on the prevailing negative sentiment in the market. However, after achieving a new all-time high of $2,758 during the European trading session on Wednesday, the precious metal reversed its trend and concluded the day with a 1.2% decline. The rise in US Treasury bond yields, coupled with the overall strength of the US Dollar (USD), contributed to XAU/USD's midweek downturn. Furthermore, profit-taking following the record-breaking rally likely intensified the bearish sentiment.
  • On Thursday, US data indicated that business activity in the private sector continued to expand robustly in early October, with the preliminary S&P Global Composite Purchasing Managers Index (PMI) rising to 54.3 in October from 54.0 in September. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, remarked on the survey's results, stating, “October saw business activity continue to grow at an encouragingly solid pace, sustaining the economic upturn that has been recorded in the year to date into the fourth quarter,” and added, “The October flash PMI is consistent with GDP growing at an annualized rate of around 2.5%.” Following this report, Gold faced challenges in regaining upward momentum and ended the day with a modest increase.

  • Gold investors gear up for key data releases

    The US Bureau of Economic (BEA) will publish the first estimate of the annualized Gross Domestic Product (GDP) growth for the third quarter on Wednesday. Investors forecast the US GDP to expand by 3% in this period, matching the growth recorded in the second quarter. A reading above the market expectation could boost the USD as the immediate reaction and cause XAU/USD to stretch lower. On the other hand, a disappointing GDP print, between 1% and 2%, could hurt the USD.

    On Thursday, the BEA will publish the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred gauge of inflation, for September. Because the GDP report will also offer quarterly PCE Price Index numbers, the monthly data is unlikely to trigger a market reaction.

    Gold technical outlook

    The Relative Strength Index (RSI) indicator on the daily chart retreated toward 60 after rising above 70 earlier in the week, suggesting that the bullish bias remains intact after Gold corrected its overbought conditions. Additionally, XAU/USD remains within the ascending regression channel coming from June.

    Looking south, first support could be spotted at $2,700, where the mid-point of the ascending channel is located, before $2,675 (20-day Simple Moving Average) and $2,635 (lower limit of the ascending channel). 

    On the upside, interim resistance seems to have formed at $2,750 before $2,770 (upper limit of the ascending channel) and $2,800 (round level). 

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