Gold Weekly Forecast: XAU/USD Holds up Amid Sudden Dollar Rally

Gold (XAU/USD) Weekly Forecast: Bullish

Gold holds up as the US dollar catches a two-day bid
Greater market risk sustains gold volatility (US banks, debt ceiling unresolved)
Technical levels to watch next week as the shorter-term bearish directional move conflicts with the long-term bull trend
The analysis in this article makes use of chart patterns and key support and resistance levels. For more information visit our comprehensive education library

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Gold Holds up as the US Dollar Catches a two-day Bid

Gold prices have eased since marking the yearly high last week Thursday and despite a rather impressive recovery in the US dollar (DXY), the precious metal has not sold off in the same magnitude. The long-term inflation component of the University of Michigan consumer sentiment survey revealed the hottest number since 2011, building on yesterday’s impressive rise in the dollar index. However, it is difficult to make a case that gold’s recent selling is likely to turn into a runaway market given its safe haven appeal at a time when US regional bank jitters and the US debt ceiling impasse have re-emerged. Therefore, the outlook for gold next week is bullish, particularly since the prospect of a bullish continuation at the new lower levels is likely to entice gold bulls.

Gold prices drop as the dollar gets a boost

Source: TradingView, prepared by Richard Snow

Presence of Greater Market Risk adds to Gold Volatility

The chart below shows the two periods of nervousness, the first in March when the extend to the depth and reach of a full-blown banking crisis was unknown and more recently in May when more banking concern (with a US regional bank focus) appeared once more. Gold volatility is associated with moves to the upside more often than moves to the downside. Therefore, a bullish outlook on gold remains viable as long as levels of volatility remain elevated.

Gold volatility Index (GVZ)

Source: TradingView, prepared by Richard Snow

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Gold (XAU/USD) Technical Analysis

After tagging a new all-time high, gold prices pulled back and have been heading lower since. Despite the recent bearish trend, gold prices remain supported above the $2000 psychological level. Heading into the weekend, gold prices appear to be holding up well despite a considerable two-day surge in the dollar – thus far.

The descending trendline acting as resistance, currently separates the short-term directional move from the longer-term bullish trend. Therefore, a break above such resistance next week bodes will for a bullish continuation. On the other hand, any positive news that may develop over the weekend or at some stage next week around the looming US debt ceiling deadline, could see the shorter-term bearish move extend below $2000. As long as prices close above $2000, the bullish outlook remains constructive.