Gold (XAU) Forecast: Bearish Chart Pattern Signals Potential 2-3 Week Decline

Gold Prices Retreat as Market Eyes US Economic Data

Gold prices have taken a downturn, with the market hovering just above the 50-day moving average support at $2360.91. This decline comes as investors brace for upcoming US economic data that could provide insights into the Federal Reserve’s potential interest rate cuts.

At 10:10 GMT, XAU/USD is trading $2374.47, down $22.925 or -0.96%.

Profit-Taking and Technical Analysis

The precious metal experienced a 1% drop on Thursday, primarily attributed to profit-taking by investors. From a technical standpoint, the market appears poised for further downside movement. The confirmation of a bearish chart pattern, following last week’s closing price reversal top on the weekly chart, suggests a potential 2-3 week decline. I’m even eyeing a possible collapse to $2234.02.

Economic Data in Focus

Traders are eagerly awaiting the release of US gross domestic product data and the personal consumption expenditure (PCE) figures. These reports are crucial in shaping expectations regarding the timing and magnitude of potential Fed rate cuts. Currently, market participants anticipate the Fed will implement its first rate cut in September.

Safe-Haven Appeal

Despite the current downtrend, gold’s long-term outlook remains positive. The World Gold Council highlights that ongoing election-related uncertainty and rising geopolitical threats could drive investors towards safe-haven assets like gold. This sentiment is echoed in a Reuters poll, which predicts gold prices are set for a fresh run to record highs in the coming months.

Treasury Yields and Dollar Movement

Interestingly, gold traders have shown limited reaction to the recent dip in Treasury yields and the lower dollar. This suggests that other bearish factors may be at play in the current market. Investors are closely monitoring these indicators alongside the upcoming economic data releases.

Market Forecast

Given the technical indicators and current market sentiment, the short-term outlook for gold appears bearish. However, if the PCE data shows slowing inflation, supporting a September rate cut by the Fed, we could see a resurgence in gold prices. Traders should remain vigilant, as the market may experience increased volatility in the coming weeks.

Technical Analysis

Today’s sell-off in XAU/USD is currently challenging the 50-day moving average at $2360.92. This indicator has to hold or prices could collapse into the triple-bottom area at $2293.69, $2286.83 and $2277.34. At that point, you’ll have to ask yourself, “when did you last see a quadruple bottom?”  Pretty rare, and with newswriters constantly mentioning the “buy the dip” trading strategy, this time it may be doomed to fail.

Using the daily/weekly chart combination, I’m looking for a near-term test of $2234.00. This level represents 50% of the October to July rally.