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Gold price outlook: pullback on the cards while US-China's tensions is increasing

12:43 | 10/08/2020

Record low-interest rates and the unprecedented monetary policy response from the Federal Reserve have seemingly created the perfect environment for gold prices to extend their recent run higher. 

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gold price forecast next week august 10 14 potential target above the level of 2235 Gold price forecast next week (August 10 – 14): Potential target above the level of 2235?
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gold price outlook pullback on the cards while us chinas tensions is increasing
Gold prices could hit past the Rs 70,000 mark over the next two years (Photo: FX Empire)

Gold, XAU/ USD, inflation expectations

According to Daily FX, the central bank’s $3 trillion balance sheet expansion, to help shelter the US economy from the coronavirus pandemic, has substantially devalued the US Dollar and fueled long-term inflation fears.

This has stoked the appeal of gold as a hedge against inflation and reflected in the positive correlation seen between 5-year forward inflation expectations and bullion prices.

Inflation Expectations vs Price of Gold (2019-Present)

gold price outlook pullback on the cards while us chinas tensions is increasing
(Photo: FRED)

Furthermore, the performance of the anti-fiat metal in times of elevated volatility belies its purported ‘safe haven’ aspects. It tends to be relatively uninfluenced by the oscillations seen in the markets primary fear-gauge, the VIX.

However, gold’s susceptibility to the performance of the US Dollar may cap potential upside for the time-being as escalating tensions between the United States and China begin to weigh on market sentiment.

As tit-for-tat exchanges burgeon investor’s appetite for the Greenback, a period of US Dollar strength looks in the offing should the Trump Administration expectedly ramp up anti-China rhetoric ahead of US elections in November.

On the other hand, a distinct de-escalation between the world’s two largest economies could see the ‘goldilocks’ environment for gold continue and potentially see the precious metal extend its historic climb above the $2,000/oz mark.

Gold Correlation Matrix (2018 – Present)

gold price outlook pullback on the cards while us chinas tensions is increasing
(Photo: Bloomberg)

Gold price daily chart, near-term pullback in the offing

gold price outlook pullback on the cards while us chinas tensions is increasing
(Photo: FRED)

From a technical perspective, resistance at the 61.8% Fibonacci extension (2,077.88) may continue to cap upside potential as RSI divergence suggests a near-term pullback is on the cards.

Moreover, the development of the MACD indicator hints at underlying exhaustion and could encourage sellers should it cross back below its ‘slower’ signal line counterpart, after pushing to its most extreme daily readings since August 2011.

With that in mind, prices may slide back to psychological support at the $2,000/oz mark before gearing up to test the yearly high (2075.15).

A daily close above the 61.8% Fibonacci is needed to validate bullish potential and open a path to test the $2,100/oz mark.

Conversely, a break below the August 5 low (2009.69) and the Schiff Pitchfork median line could lead to a more sustained pullback in the price of bullion. Key regions of support falling at the July high (1984.22) and August low (1960.60).

What's about gold price this week?

According to Forex 24, an additional signal in favor of a rise in quotes and prices for GOLD in the current trading week August 10 — 14, 2020 will be a test of the rising trend line on the relative strength index (RSI). The second signal will be a rebound from the lower border of the ascending channel. Cancellation of the growth option for XAU/USD quotes will be a fall and a breakdown of the area of ​​1765. This will indicate a breakdown of the support level and a continued fall in gold prices with a target below 1575. Confirmation of the growth in the value of the asset will be a breakdown of the resistance area and closing of quotes above the level of 2055.

gold price outlook pullback on the cards while us chinas tensions is increasing
(Photo: Forex 24)

GOLD Price Forecast and Analysis August 10 — 14, 2020 assumes an attempt to test the support level near the 1895 area. Then, the gold prices will continue to rise with a target above the level of 2235. A test of the trend line on the relative strength index (RSI) will be in favor of raising the quotes. Cancellation of the GOLD growth option will be a fall and a breakdown of the level of 1765. This will indicate a continued decline in quotations to the area below the level of 1575.

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