Gold Price Outlook: XAU/USD Eyes Prior All-Time High Amid Elevated Tensions

Gold (XAU/USD) Analysis

• USD drifts higher while yields appear vulnerable to further downside

• Gold hints at bullish continuation but key psychological level keeps prices at bay

USD Drifts Higher While Yields Appear Vulnerable to Further Downside

The US dollar started the week on the right foot, although, the early Monday rise was certainly nothing to brag about. The greenback has not only managed to remain supported but looks to build on Fridays gains at the start of a holiday affected week. In observance of Martin Luther King Day, major US markets are offline and will only open tomorrow.

Despite considerable headwinds, the US dollar defies all challenges to trade higher on Monday (at the time of writing). US yields head lower and markets bring forward expectations of the first US rate cut which could arrive as soon as March, potentially including 25 basis point cuts at every meeting until December.

The chart below highlights the US 2-year Treasury yield as it appears vulnerable to further declines as rate cut projections gain traction.

Gold Hints at Bullish Continuation but Key Psychological Level Keeps Prices at Bay

Gold prices have recovered after steadily declining within the blue descending channel, now attempting to breakout of the channel but the $2050 level could keep a bullish continuation at bay for now.

$2050 is a significant level as it provided weekly highs in August 2020 and April 2023 and obviously carries psychological significance too. That being said, gold has shown to be susceptible to large spikes to the upside by virtue of its safe haven appeal during a period of elevated geopolitical instability, which could render $2050 ineffective.

The MACD indicator hints at a bullish crossover, suggesting upside momentum is building. In addition, the 50-day simple moving average also acts as dynamic support – propelling lower prices. The prior all-time high of $2081.80 is the next level of resistance.