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Gold Price Forecast: XAU Fundamentals Look Bleak But Upside Potential Lingers

Dec 9, 2021

By:Thomas Westwater

Gold prices have been ranging over the last 24 hours as stock market volatility cooled. The upside path for XAU is cloudy, but geopolitical factors present a possible spark to move higher.

Gold, XAU/USD, Inflation, Volatility, Geopolitical Risks – Talking Points

  • Gold prices see little movement as market volatility cools
  • XAU bulls discouraged, but upside geopolitical risks remain
  • Technical forecast sees moving average pressuring prices

Gold prices were largely unchanged over the past 24 hours despite some weakness in the US Dollar. The yield curve flattened overnight, boosting riskier assets like equities. That also gave the advantage to technology stocks on Wall Street. The yellow metal faces a tougher path higher ever since the Federal Reserve shifted to a more hawkish stance several weeks ago.

That hawkish shift has markets pricing in a more aggressive rate-hiking schedule from the Federal Reserve, which has pushed breakeven rates lower. For now, it appears market participants believe the Fed will get a handle on inflation going forward. Even the Omicron variant doesn’t appear to be altering the current outlook. It will likely take a massive shock at this point to throw the Fed off course, which is unlikely.

Volatility, another gold driver, is also fading. The S&P 500’s VIX ‘fear gauge’ fell below the 20 level overnight. Fading Omicron risk appears to be responsible for the lull in volatility. However, geopolitical risks are on the rise. The situation between Russia and Ukraine remains tense, with Russia amassing troops along the Ukrainian border.

This has invited widespread condemnation toward Russia, who experts believe may be planning an invasion. Such a move would likely trigger a crisis, one that could spark volatility in markets. The United States would likely levy heavy economic sanctions on Moscow if troops do cross over into Ukraine. Those sanctions could include limiting access to US bond markets and even possibly restricting access to the SWIFT banking system. That would bode well for gold.

GOLD TECHNICAL FORECAST

Gold has made unsuccessful intraday attempts to clear the 26-day Exponential Moving Average over the past four sessions. The key EMA level defended upside moves several times last week as well. That said, prices will likely struggle while below the moving average. The December and November swing lows at 1761.99 and 1758.93 may serve as support if prices turn lower.

XAU/USD Daily Chart

trade_2.PNG

Chart created with TradingView

--- Written by Thomas Westwater, Analyst for DailyFX.com To contact Thomas, use the comments section below or @FxWestwater on Twitter


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