Gold price outlook turns bearish as key technical level is breached
The gold market witnessed a sharp sell-off on Friday, triggering a notable technical breakdown as XAU/USD closed below the critical 50-day Simple Moving Average (SMA). With prices ending the session at $3,337.070, down $31.640 or 0.94%, bearish sentiment has returned to the gold market. This move suggests short-term downside risks as traders reassess their positions ahead of next week’s Federal Reserve policy decision.
Key Highlights: Gold Price Forecast (July 26)
- Gold (XAU/USD) closed below the 50-day SMA for the first time since mid-June
- Price settled at $3,337.070, a drop of $31.640 or 0.94%
- Strong U.S. dollar and positive jobless claims data pressured gold
- Risk-on sentiment due to potential U.S.-EU trade agreement further hurt gold’s safe-haven demand
- Technical breakdown signals short-term bearish bias in gold markets
Technical Analysis: Break Below the 50-Day SMA Sparks Bearish Concerns
What is the significance of the 50-day SMA?
The 50-day simple moving average (SMA) is a widely tracked technical indicator used by traders to determine medium-term trend direction. It has served as a key support level for gold prices since mid-June, providing several bounce opportunities for bullish traders. However, Friday’s close below this level at $3,341.0 suggests a loss of upward momentum.
Consequences of the technical breakdown:
- Loss of key support level shifts the short-term trend bearish
- Opens the door to a deeper retracement toward lower support zones
- May trigger increased selling from technical traders and algorithmic systems
Macro Factors Driving Gold Lower
1. Strong U.S. Dollar Dents Gold Appeal
A major factor behind gold’s fall was the resurgence of the U.S. dollar. The dollar index (DXY) rose sharply on Friday, supported by better-than-expected jobless claims data. This strength eroded the appeal of non-yielding assets like gold, especially among foreign investors.
Key data supporting dollar strength:
- U.S. jobless claims fell unexpectedly, signaling a resilient labor market
- Treasury yields rose, reducing demand for zero-interest-bearing assets like gold
- Market expectation for the Fed to hold or even hike rates in the near term increased
2. Improving Global Risk Sentiment
The risk-on mood in global markets, driven by renewed optimism over a U.S.-EU trade deal, further dampened gold’s attractiveness as a safe-haven asset. Equities rose globally, and traders rotated out of gold and into riskier assets.
Market sentiment factors:
- Hopes of reduced trade tensions between the U.S. and EU
- Rebound in U.S. tech stocks supporting global equity markets
- Reduced fears of an imminent recession
What’s Next for Gold (XAU/USD)?
Key Support Levels to Watch
With the 50-day SMA now broken, the next major support zones to watch are:
- $3,320: Psychological round number and recent swing low
- $3,300: Previous resistance now turned support
- $3,275: Key Fibonacci retracement level from the March–July rally
If gold breaks below $3,320, the selling pressure may intensify and lead to a test of $3,300 or even lower.
Resistance Levels to Monitor
Any recovery in gold will face resistance near:
- $3,341–3,345: The broken 50-day SMA zone, which may now act as resistance
- $3,360: Short-term resistance seen earlier this month
- $3,375–3,400: Major supply zone
Market Sentiment Ahead of the Federal Reserve Decision
Investors will now shift their focus to the Federal Reserve’s July policy meeting. Any signals about future rate hikes or dovish pauses will have a direct impact on the dollar and, in turn, gold.
Scenarios to consider:
- Hawkish Fed tone → Stronger dollar → Gold could decline further
- Dovish or pause signal → Weaker dollar → Gold may rebound
Traders are advised to remain cautious and watch for volatility in both gold prices and U.S. economic data releases.
Trading Strategy Tips for XAU/USD
For retail and institutional traders, here are some key trading considerations for XAU/USD in the coming sessions:
Bearish Bias (Below $3,341)
- Short-term trend favors sellers
- Look for retest and rejection near the 50-day SMA as a shorting opportunity
- Use tight stop-loss above $3,345 to manage risk
Bullish Reversal (Only above $3,360)
- Wait for confirmation of a break and close above $3,360
- Monitor dollar weakness or dovish Fed signals
- Place stop-loss below $3,320 to safeguard against false breakouts
Conclusion: Gold Faces a Short-Term Bearish Shift
The break below the 50-day SMA in gold prices marks a significant shift in the short-term technical landscape. Coupled with macro headwinds like a stronger dollar and improving risk sentiment, gold now faces downside risks in the near term. As the market awaits further guidance from the Federal Reserve, traders should remain nimble and focus on key technical levels for direction.
