Gold has eased back from a fresh record high hit on Wednesday, following the Fed’s rate cut, with the synchronized rebound in US dollar and bond yields suggesting it has been driven by the Fed Chair Powell’s slightly hawkish press conference. But the longer-term gold forecast remains bullish owing to continued central bank buying, inflation hedging and momentum. It is far too early to suggest gold has topped out, but we could see a bit of a pullback now.

Why has gold weakened?

Well, profit-taking is partly the reason behind gold’s weakness. However, the renewed rebound in the dollar in the second half of Thursday’s session suggests the dollar recovery may hold for a bit longer, despite the Fed pivoting. Still, bullion could quickly regain momentum and potentially push to fresh all-time highs if the US dollar resumes lower, especially if incoming data disappoints.

The real debate now is whether policymakers will follow through with additional cuts before year-end. Market participants will therefore look past the rate cut itself and instead focus on the bigger picture: how far the Fed is prepared to go in easing policy and whether it will stick with the guidance or whether incoming data spoils the party.

Jobless claims beat

From a macro point of view, today’s weekly claims data was better than anticipated at 231K vs. 241K eyed. This comes on the back of retail sales data from Tuesday, which rose more than expected. But does it matter? Well, the retail sales data suggests it is not all doom and gloom out there. The Fed has clearly signalled it will trim rates twice more and everyone expects them to do so. Well, the jury is still out on that, as surely one retail sales report or jobless claims is unlikely to sway the Fed in one or the other direction. So, from a rate cut perspective, traders may take this week’s better than expected data in their stride and continue to buy dips in foreign currencies and gold.

Technical gold forecast: key levels to watch

So, investors are likely to continue viewing dips in gold and foreign currencies as buying opportunities. But gold may need to pullback deeper to encourage investors to buy at these extremely elevated levels – the RSI on the daily, weekly and monthly are all above 70. Certainly, the Fed’s communication was overall dovish, which could encourage traders to buy future dips in gold. So, while there is a risk of a short-term drop, the longer term gold forecast is still technically bullish. Thus, it could be resuming its upward climb and potentially setting fresh records in the not too distant future. But we will now need to see a bullish reversal stick for confirmation.

In terms of levels to watch on the gold chart, initial support comes in at $3,600 area, followed by $3,565, before the focus turns to the more significant $3,500 level. Key resistance is now seen around 3,646, marking Wednesday’s low, followed by $3674/5. The all-time high is at $3,707.

— Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R