XAU/USD outlook: Gold is likely to hold in extended consolidation

XAU/USD

Gold price edges lower on Wednesday, keeping near-term picture negatively aligned, as larger bulls lacked strength to clearly break above psychological $2000 barrier, after three unsuccessful attempts.

Obviously, $2000 level marks significant resistance, which managed to limit recent rally, prompting traders for partial profit taking.

The yellow metal, as safe-haven instrument, sees ideal environment in the situation of increased uncertainty, caused by crisis on economic or geopolitical instability as traders tend to move into safety in case of worsened conditions.

The most recent turmoil, caused by collapse of two US and one Swiss bank, sparked strong fears that this could be just the tip of the iceberg which may lead into much deeper crisis, inflated gold price for another probe through $2000 barrier (bulls have already failed twice at this zone in 2020 and 2022).

The latest pullback from yearly high ($2009) found firm ground just above pivotal Fibo support at $1931 (38.2% retracement of $1804/$2009) and continued to move within this range, suggesting that the price is consolidating and positioning for fresh push higher.

Overall conditions remain favored for gold, as markets still see significant risk of further deepening of the crisis, despite calmer tones from US officials, which signal that the threats have been contained and banking sector is stable.

Adding to positive signals for the metal was change in the narrative from expectations of significant improvement to fresh signals of recession, along with comments from Fed Chair Powell, who pointed to much tighter lending conditions if banking crisis deepens.

This would have a negative impact on inflation, similar to high interest rates. Such scenario would prompt the Fed to start easing its policy that would increase pressure on dollar and offer fresh support for gold. Technical picture on all larger timeframes (daily; weekly, monthly) is bullish, though with overbought conditions on weekly and monthly chart, which confirm signals of extended consolidation before bulls take full control again.

The gold is on track for significant monthly gains (near 8%) and formation of bullish engulfing pattern on monthly chart, which adds to bullish short-term outlook.

Res: 1979; 2000; 2009; 2037.
Sup: 1944; 1931; 1913; 1907.

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