Gold Jumps After ISM Data; Can it Rise Above the Key $2000 Level?

Gold, XAU/USD – Technical Outlook:

• Gold is once again testing the key psychological resistance at $2000.
• The rebound from March has taken place on feeble momentum on higher timeframe charts.
• What is the outlook and what are the key levels to watch?

GOLD TECHNICAL OUTLOOK – NEUTRAL

Gold is once again flirting with the psychological 2000-mark after it rebounded strongly on Monday following dismal US factory data. What are the chances for it to rise above the key resistance?

The yellow metal bounced on softer US Treasury yields after US manufacturing activity slowed faster than expected in March, falling to the lowest level in three years. The vital new orders component fell to 44, just one point above the level commonly associated with recession.

XAU/USD Daily Chart

Chart Created Using TradingView

Still, headwinds persist for XAU/USD. The output cut by major oil producers could put a floor for oil prices and prevent inflation and yields from falling much. This could reduce the appeal of the non-yielding asset. Markets are now pricing in a 65% chance of one more Fed rate hike in May, up from 55% on Thursday. Hence it appears that gold would need a strong cyclical/structural catalyst for a sustainable uptrend to unfold.

XAU/USD 240-minute Chart

Chart Created Using TradingView

On technical charts, the most recent price action seems to suggest that XAU/USD is consolidating in a flag-type consolidation pattern. However, developments on higher timeframe charts warrant some attention.

On the weekly charts, negative divergence (rising price associated with a stalling in momentum) persists (see “Gold Could Find it Tough to Crack $2000”, published March 28). On the monthly chart, momentum has been slowing since 2020 even as the price has attempted to crack the psychological 2000 mark. Moreover, momentum isn’t reflective of the most recent rebound from early March, raising the prospect of a ‘last hurrah’ in price.

XAU/USD Monthly Chart

Chart Created Using TradingView

Having said that, there is no sign of an imminent reversal of the uptrend, at least yet, and any break above the March highs could open the way toward initially toward the 2020 peak of 2072. But given the dynamics unfolding on longer timeframe charts, it might be prudent to wait for a decisive break above the 2000-2072 area before turning unambiguously bullish.

On the downside, key support is around 1934-1950 (see chart), and gold would need to break below the support area for the immediate upward pressure to fade. Such a break could expose the downside toward 1900. However, until then, the path of least resistance remains sideways to up.

— Written by Manish Jaradi, Strategist for DailyFX.com

— Contact and follow Jaradi on Twitter: @JaradiManish