Gold (XAUUSD) Price Forecast: Support Zone Holds but Gold Rally Needs More Than Oil Pullback

Spot Gold Up Late Tuesday After Successful Test of Key Support Zone

Spot Gold (XAUUSD) is up late Tuesday after a successful test of what could be the last short-term support on the daily chart. At 19:07 GMT, XAUUSD is trading $4,560.10, up $35.99 or 0.80%. Monday hit the lowest level since March 31. Tuesday gold rose as investors weighed a fragile ceasefire and what the conflict means for inflation and rate expectations. Here’s what the levels say and what’s actually driving this market.

Why Gold Got a Bid Today

Oil is the story here, not gold. June WTI crude oil dropped 4% to around $102 a barrel Tuesday and that’s what put a floor under this market. I’ve been watching gold react to oil all week.

The 10-Year U.S. Treasury yield slipped 4 basis points to 4.406%. The 2-Year U.S. Treasury yield eased more than 2 basis points to 3.927%. The 30-Year U.S. Treasury yield dropped more than 3 basis points to 4.988%. Yields coming off recent highs took some pressure off gold. Not enough to call it a real rally. Enough to stop the bleeding for a session.

The Strait of Hormuz Is Still the Wildcard

The ceasefire is still technically in place but the UAE reported missile and drone activity involving Iran on Tuesday. Washington is calling it intact. I’m not sure the market believes that anymore.

The Strait of Hormuz has been virtually shut since February 28 and Tuesday changed nothing about that. Fresh attacks get priced in fast and then traders go right back to watching rates and the dollar. That’s been the pattern for weeks. Geopolitical risk that doesn’t escalate stops moving gold. It just keeps a floor under it. Right now that floor is doing its job but it’s not doing anything more than that.

The Dollar Is the Ceiling

The U.S. Dollar Index held steady at 98.44 after gaining 0.3% Monday. It’s not breaking out but it’s not rolling over either. As long as the U.S. Dollar Index holds this ground, Spot Gold (XAUUSD) is going to struggle to build any sustained upside. A stable dollar makes gold more expensive for buyers outside the United States and that headwind doesn’t disappear just because yields dipped a few basis points.

Economic Data Didn’t Help the Bull Case

JOLTS job openings came in at 6.87 million for March, slightly above the 6.8 million estimate. That’s not a labor market breaking down. The ISM services PMI for April came in at 53.6 against a 54.0 estimate. Missed but still in expansion. The economic picture is mixed but not weak enough to force the Fed’s hand. Higher-for-longer stays on the table and that’s the ceiling for gold until something changes.

The number that actually matters comes later this week. The U.S. employment report is the real test. A soft number revives rate cut expectations and gives gold a cleaner path higher. A firm number locks in the current environment and keeps gold capped. I’m watching that report more than anything else on the calendar right now.

Technical Outlook

The short-term range is the March 23 main bottom at $4,099.12 and the April 17 main top at $4,891.54. Its 50% to 61.8% retracement zone is $4,495.33 to $4,401.84. This zone was tested successfully on Monday at $4,501.04.

More importantly, it stopped just $19.26 above the bear market territory price at $4,481.78, if you believe the 20% down from the top rule.

If buyers don’t start coming in soon to defend this area, the market could collapse into the 200-day moving average at $4,288.54. And if this is broken decisively then traders will begin to question long-term support and the long-term trend. So brace yourself for the return of volatility.

Swing chart traders may choose to ignore the price action between $4,495.33 and $4,401.84 because they have the $4,099.12 swing bottom to lean on.

Two things have to happen to change my mind about the downside potential for Spot Gold (XAUUSD). First, it has to reestablish support on the strong side of the long-term 61.8% level at $4,541.88. If it doesn’t overcome the 50% level at $4,744.34, then get ready for weeks of more sideways trading.

The second thing that will convince me of a bottom will be a sustained rally over the 50-day moving average at $4,808.89.

Keep in mind that the 200-day moving average is still rising and the 50-day moving average is setting up for a steep turn down. So at some point in the near future, the short-term moving average is going to cross to the weak side of the longer-term moving average.

The Test That Mattered

Monday’s low at $4,501.04 stopped just $19.26 above bear market territory at $4,481.78. That’s the 20% down from the top line and the market came within a stone’s throw of it. The value zone at $4,495.33 to $4,401.84 held on the first test and Tuesday’s session opened with buyers stepping back in. I’ve watched gold do this before. A successful test of a key zone draws bargain hunters. That’s positioning, not conviction. Those are two different things and right now I’m not ready to call it conviction.

What I’m Watching

The bounce off the value zone is encouraging but I need to see Spot Gold (XAUUSD) reestablish support on the strong side of $4,541.88 before I get interested on the long side. Below that level the zone is doing damage control, not building a base. The 50-day moving average at $4,808.89 is the line that changes my mind about the downside. Until gold gets above it and holds, rallies are selling opportunities.

More Information in our Economic Calendar.