Gold Prices Forecast: Profit-taking Pushing XAU/USD Toward Major Support at $1934 to $1923

Highlights

• Gold (XAU/USD) is testing a three-week low.
• Pressure is coming from the unwinding of previous bullish positions as the threat of an escalation of the Middle East conflict eases. 
• The direction of US interest rates remains uncertain as FOMC members set a balanced tone between economic data and the impact of higher long-term Treasury yields. 

Overview

Gold (XAU/USD) prices are testing a three-week low on Thursday as the threat of an escalation of the Middle East conflict eased, encouraging longs to book profits from their safe-haven buys. Meanwhile, U.S. traders awaited comments from Fed Chair Jerome Powell for more clues on the direction of U.S. interest rates.

At 08:45 GMT, Gold (XAU/USD) is trading $1949.54, down $0.74 or -0.04% and December Comex futures are at $1954.60, down $3.20 or -0.16%.

After rallying most of October, we’re seeing some unwinding of previous bullish positions as speculators price out the risks of a broader conflict in the Middle East.  The improving environment in the region seems to be forcing safe-haven buyers to the sidelines. If you recall, at the height of the conflict, gold tested the elusive $2000 level briefly.

Domestically, a group of Fed officials who spoke earlier in the week sustained a balance on the direction of Fed policy by noting that the Federal Open Market Committee (FOMC) would continue to focus on economic data such as inflation and labor, as well as the impact of higher long-term Treasury yields.

On Wednesday, Fed Chair Powell did not comment on monetary policy or the economic outlook, according to Reuters. In the meantime, gold traders believe that he will probably try to maintain the “higher-for-longer” narrative for interest rates that he emphasized at the Fed meeting a week ago. This essentially is telling the market that the Fed isn’t interested in talking about cutting rates yet.

Based on that assessment, the futures market points to a roughly 14% chance of another rate hike in January, but is pricing in an 18% chance that rate cuts could come as early as March, according to the CME FedWatch Tool.

Short-Term Outlook

The short-term outlook from both a fundamental and technical perspective leans toward the bearish side.

Technical Analysis

Gold (XAG/USD) is trending lower after breaking minor support earlier in the week, however, the big challenge will be following a test of the 200-day moving average at $1934.52 and the 50-day moving average at $1923.09. These levels are controlling both the short-term and long-term direction of the market.

Given the current downside momentum, it looks as if these levels could be tested this week or early next week. Trader reaction to the moving averages will go a long way in determining whether prices rise into the end of the year, or plunge further.