Gold Price Forecast: Bears Defend Trendline as Gold Tests $4,025 Support

Quick overview

Gold remains under selling pressure with fading geopolitical risks and a dovish Fed putting a brake on upside momentum. Spot gold was trading at $4,063 on July 9, consolidating as it could not regain the resistance zone. Although demand for safe-haven assets has waned in recent weeks, long-term fundamentals such as central bank demand, high debt levels and stubborn inflation remain supportive for gold. The short-term direction depends on if buyers can hold the $4,024 low or regain footing above $4,091, the level of technical and sentiment resistance for now.

Central bank purchases have been offsetting weaker safe-haven demand

The recent decline in gold reflects an easing of geopolitical risks with the Islamabad Memorandum of Understanding, which was a provisional deal signed by the US and Iran to prevent war, coming into effect and opening the Strait of Hormuz, and Iran resuming crude oil exports, lowering global fears for the supply of oil and energy. Falling oil prices have also lowered inflation expectations, which previously supported gold as a hedge against inflation. While geopolitical risks remain, investors are waiting to see if the current situation deteriorates.

In this regard, Fed policy remains a key variable. At its June meeting, the Fed left rates unchanged, and signaled it will stick to a data-dependent approach and keep interest rates higher for longer since inflation is still above target. This is keeping the dollar and treasury yields high, which increases the opportunity cost of gold, since there is no yield.

Despite these headwinds, however, fundamentals will remain positive for now, as inflation remains above the target set by the Federal Reserve and high government debt and uncertain Fed policy will make investors continue to hold defensive assets. Central bank demand for gold is also strong. Many emerging market central banks, led by China, continue buying gold for reserve diversification. Unlike in the case of speculative purchases, central bank purchases are more stable in nature. In this context, the market supply is still tight. The gold market will take quite some time to expand the supply due to rising operational costs, low grade ores and long time required to build new mines, meaning a faster increase in prices or higher demand may not be supported by an increase in supply.

Gold Technical Analysis: $4,091 Becomes Key Resistance

Technical analysis shows that gold keeps falling under a long-term descending trend line, following a confirmation of its bearish breakdown on the four-hour chart. It continues to move in a pattern of lower highs and lower lows, with sellers keeping short-term control.

The immediate support is at $4,024, preventing a deeper drop. However, a fall below $4,024 will open the way for the next key support near $3,962, below which further bearish decline is likely toward $3,903. In terms of resistance, $4,091, which was previous support before turning into resistance, remains the first important barrier. Gold needs to hold higher ground to extend short-term bullish sentiment to $4,157, followed by $4,222 in case the bulls take over. The 200 period EMA, situated around $4,257, will continue to hold back the recovery.

Meanwhile, a bearish bias is still holding in the RSI indicator and sits at 41.4 level, while the selling pressure is showing early signs of a slowdown. The MACD histogram has also turned neutral, indicating the selling momentum is losing steam despite the overall negative picture.

Gold Price Outlook

For gold, the long-term positive factors are still intact because of the higher central bank purchases, limited new mine output, and ongoing worries over inflation, while the short-term bearish pressures from higher interest rates and a strong dollar persist. Technicals also confirm that bulls need to keep gold prices above $4,091. Gold might test $4,157 and $4,222 if it can break the resistance near $4,091. In the meantime, a drop below $4,024 could increase the chances of a move to $3,962. In the next few days, traders might focus on the upcoming economic data and Fed speech for more direction in the precious metal.

ABOUT THE AUTHOR See More

Arslan Butt

Lead Markets Analyst – Multi-Asset (FX, Commodities, Crypto)

Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.

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