Gold price forecast: Upside favored after defense of key support for third straight week

Gold could rise above $1,300 next week, having defended a long-term moving average price support for the third straight week. 

The safe haven yellow metal found takers at the 100-week moving average (MA) of $1,277 on Monday as Trump’s re-escalation of the trade war with China sent risk assets sharply lower on the fist trading day of the week. 

Last Sunday, Trump said that he would raise tariffs on $200 billion worth of Chinese goods from 10% to 25%, pouring cold water over the optimism generated by Washington’s repeated assurances that talks are progressing well. Gold, therefore, remained bid throughout the week with stocks and other risk assets feeling the pull of gravity on fears of a full-blown US-China trade war. 

However, despite the risk-off, the yellow metal faced rejection at the 50-day MA of $1,291 on Wednesday. Nevertheless, prices are reporting a 0.5% gain on a weekly basis at press time. 

More importantly, Gold’s repeated bounce from the 100-week MA is telling a tale of seller exhaustion. The hard currency has bounced up from the key average this week, as noted earlier. In the previous two weeks, sellers failed to secure a weekly close below the long-term average with prices bouncing up from the support of the trendline connecting August and October lows. 

Weekly chart

As seen above, the sell-off from the February high of $1,346 seems to have run out of steam around the 100-week MA. 

The gains seen this week validate (or mark a strong follow-through to) the rebound from the ascending trendline seen in the previous two weeks. Hence, the metal looks set to breach the upper edge of the falling wedge in the near term.

A wedge breakout would confirm an end of the price pullback and allow a retest of the highs near $1,325 seen in March. The bullish case would weaken if the price closes next week below the ascending trendline. 

That, however, looks unlikely with the 10-year treasury yield looking south toward the 20-week MA support of 2.36%, having carved out a bearish lower high along the six month falling trendline over the last three weeks. 

Further, with the US-China trade deal looking increasingly difficult, the investors will likely continue seeking shelter in gold and other safe haven assets.  The US made good on its threat to raise tariffs earlier today. China has vowed to fight back, but so far, hasn’t disclosed specific of retaliatory measures. Experts believe Beijing will respond by raising the level of its tariffs on existing US goods, rather than target a new list of American exports.