Gold Weekly Forecast: Flight to Safety May Prompt Bullish Continuation

Gold Weekly Forecast: Bullish

Debt ceiling pause, Powell talks down rate hikes and Yellen reignites bank jitters
Enhanced uncertainty around the debt ceiling and bank concerns may prompt another flight to safety (gold) as rate hike odds have ease
Short-term reversal hints at continuation of longer-term bullish continuation
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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Debt Ceiling Talks on Pause, Powell Talks Down Rate Hike, Yellen Reignites Bank Jitters

With a barrage of scheduled on unscheduled news flow late on Friday, it would appear that the outlook for gold is looking up heading into the new week. News about US Treasury Secretary Janet Yellen telling CEOs of large banks that more mergers may be necessary, hit the wires around the same time Fed Chair Jerome Powell attempted to be as neutral as possible ahead of next month’s FOMC rate meeting. Just to add to the mix, it was also revealed that talks about an agreement to raise the US debt ceiling stalled on Friday as GOP members walked away from the negotiating table.

Market participants may be forced to weigh up safe-haven alternatives with more urgency the longer we go without an agreement and this tends to favour the yellow metal. In addition, Janet Yellen communicated with CEOs of America’s largest banks that more mergers may be required – renewing speculation and nervousness within the regional banking sector just as it looked to put in a decent lift from the low. At the beginning of May when JP Morgan absorbed First Republic Bank and it appeared there were two more stressed banks lining up behind it, gold prices rose by roughly 100 dollars. If there are to be more mergers, it wouldn’t be a far stretch to see gold prices rise once again.

On Friday, Jerome Powell made an appearance at a Fed hosted event and admitted that rates may not have to climb as high due to tightening in the credit market, which saw traders withdraw bets on the growing probability of a 25-basis point hike in June. The dollar and yields declined in unison which again, tends to bolster gold valuations. Markets were pricing in roughly a 32% change of a hike in June before Powell’s comments and dropped down to 20% after.

CME FedWatch Tool

Source: CME FedWatch tool, prepared by Richard Snow

Gold prices exhibit an inverse relationship to the US dollar as shown below with the US dollar basket as a proxy for the greenback. Should the dollar decline witnessed on Friday pick up into next week, this could help elevate gold prices.

Gold Prices vs US Dollar Basket

Source: TradingView, prepared by Richard Snow

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Key Technical Levels to Watch for Gold

Gold’s weekly chart reveals the recent drop from the all-time high at 2081.80 where price action remains within the broad ascending channel. The late bid on Friday saw the gold price touch the 1956 level before trading higher. The broader bull trend suggests that a near-term reversal may set the tone for a bullish continuation.

Gold Weekly Chart

Source: TradingView, prepared by Richard Snow

The daily gold chart helps to identify some key levels that may come into play in the coming week. The late bid on Friday, if it results in a close above 1970, would render this level immediate support followed by the prior swing high at 1960 and the long-term level of 1956. On the upside, 2000 and 2008 are both levels of significance and have either acted as support or resistance in 2023. Thereafter, the only level stopping a return to the all-time high are the swing highs around 2048.