Current Scenario:Gold (XAU/USD) has experienced a strong rally this year, reaching a peak near $2,450 in early May. Recently, however, this upward momentum has slowed, with prices retreating more than 4% from their highs over the past few trading sessions. This pullback suggests a potential shift in investor sentiment, with bulls possibly moving to other assets.

Fundamental Outlook:Gold's recent weakness may persist in the near term due to underlying fundamental factors. Persistent inflation could compel the U.S. central bank to maintain a restrictive monetary policy for longer, strengthening the bearish case for non-yielding assets like gold. This environment could be unfavorable for the yellow metal.

Technical Analysis:For traders considering short positions, the $2,335 support zone is critical. This level is significant due to a confluence of technical indicators, including a key trendline and the 38.2% Fibonacci retracement of the March-May rally. A decisive break below $2,335, especially with higher-than-average trading volume, would signal strong selling pressure.

If gold prices fall below $2,335, the next support to monitor is the 50-day simple moving average, currently around $2,325. Breaching this support could trigger a deeper pullback, with potential downside targets around $2,265, which aligns with another important Fibonacci level just below this month's swing low.

Alternative Scenario:The bearish outlook isn't without potential bullish reversals. Should bulls regain control and push prices higher, initial resistance is at $2,365, followed by $2,377. Overcoming this latter resistance could dampen bearish sentiment and pave the way for a rally towards $2,420. Continued bullish strength could even bring the all-time high back into consideration.

Gold Price Forecast: Bearish Continuation in Play with Key Support Under Threat

May 31 2024

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