Gold outlook: new records for XAU/USD as bullish run continues

Gold prices hit new record highs today, extending its recent bullish run that commenced last Tuesday. It is clear that safe haven demand is one of the major drivers behind this gold rally and with the Middle East tensions rising again, this helped to push prices at least $35 past the $3K hurdle. As the US session got underway, the precious metal remained supported as US technology stocks plunged. Not even a strong set of US data releases could undermine gold, as US Industrial production rose to an all-time record high in February, up 0.7% vs. 0.2% expected. Gold traders were awaiting the outcome of the call between the Presidents of the US and Russia regarding the potential ceasefire agreement for Ukraine. Any positive developments in this regard could undermine haven assets somewhat in favour of riskier assets. So, while the gold outlook is bullish for now, things could change if there are any positive developments in the Ukraine peace talks.

Why is gold rising?

There are a number of factors contributing to gold’s rise, with safe haven demand playing a major role - as it has been in the last few years amid the conflicts in the Middle East and Ukraine, surging and then elevated global inflation, and now growing fears of a trade war sparked by Trump’s protectionist stance.

With Israel’s bombing of Gaza unfortunately resuming, demand for the safe-haven metal continues to remain strong as investors realise there is no quick return to peace here and in Ukraine as Trump had promised.

Then there is economic unease sparked by Trump’s escalating tariff war. This is an additional factor boosting the appeal of the haven metal, as market participants scour for cues on what’s to come. In periods of economic turbulence and heightened market anxiety, gold has long been the sanctuary of choice for cautious investors. Since Trump’s return on the global stage, trade relations have been nothing short of chaotic. His erratic and combative tariff policy brought US market gains to a screeching halt, sparking a selloff that took root in late February and intensified in the first half of March. The situation only worsened as key trading partners responded in kind, fuelling further volatility. Against this backdrop, gold’s steady ascent to fresh highs is a telling sign of dwindling faith in those at the helm of the world’s largest economy.

Attention turns to the Fed

The focus is now turning to the Federal Reserve’s rate decision on Wednesday.

Should the Fed lean more dovish than markets anticipate, it could further bolster bullish sentiment around gold prices.

Ahead of the FOMC, we had seen a faltering US dollar, weighed down by a string of disappointing economic releases – until today, when industrial production came in well ahead of expectations. But if the dollar weakness persists, then gold could maintain its upward momentum for a while yet.

Last week, a run of softer-than-expected CPI and PPI numbers further undermined the greenback. This was compounded on Friday by a gloomy University of Michigan consumer sentiment reading, which tumbled to 57.9 from 64.7—well below the anticipated 63.1. It marks the third consecutive monthly decline in consumer confidence, likely a reflection of mounting concerns surrounding Trump’s trade tactics and their drag on broader economic morale. Particularly striking was the notable surge in inflation expectations, which leapt from 4.3% last month to a punchy 4.9% in March, suggesting that, despite a cooling in headline inflation, underlying price pressures continue to simmer.

What factors could undermine gold outlook?

One potential bearish factor would be a breakthrough in negotiations between the US and Russia regarding the Ukraine conflict. According to Bloomberg, citing people with knowledge of the matter, Putin is demanding a suspension of all weapons deliveries to Ukraine during a ceasefire proposed by Trump. If this leads to a ceasefire, investor hopes for a permanent peace will rise and that in turn may sap some of gold’s safe-haven appeal. In turn, investors may go back into riskier assets like equities. But there are a lot of “IFs” there and so it is far too early to turn optimistic on Ukraine.

Technical Gold outlook: key levels to watch

Source: TradingView.com

Also, adding to the point above about what factors could undermine the the price of gold, or the near-term gold outlook, well there is also technical factors to take into account. Until now, strong bullish momentum has been the key drive. But with gold now well into overbought levels again (see the RSI indicator, for example) and finally meeting (and now surpassing) the $3,000 barrier, many bulls’ price targets have been hit. Thus, profit-taking is a factor that could undermine gold prices. So far, we haven’t seen any major signs of a reversal but keep a close eye on prices as they test the area between $3032 to $3043, where a cluster of Fibonacci-based extension levels converge (see chart).

However, any short-term weakness we may see in gold prices should not be taken as a sign of reversal, until such a time we have a clear top in place – e.g., when a major low is broken. For now, there are lots of support levels that could provide a floor to any short-term dips, with $3,000 now being the first line of defence. Below that we have the area between $2929-2956 as the next most significant support to watch.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R