Gold Price Forecast: XAU/USD bounces up to $4,400 with the bearish trend intact
- XAU/USD returns to the $4,400 level after bouncing from $4,345 lows.
- Gold is drawing support from a weaker US Dollar but maintains the broader bearish trend intact.
- A break below the $4,300-$4,280 area activates a bearish H&S formation.
Gold (XAU/USD) trims losses on Wednesday, with price action returning to the $4,400 area during the European morning session, after bouncing from $4,345 lows on Tuesday. The precious metal is drawing support from broad-based US Dollar (USD) weakness, although the broader trend remains bearish, after losing more than $100 in the previous three trading days.
The Greenback is on its back foot on Wednesday, with investors awaiting Friday's US Consumer Inflation figures to confirm expectations that the Federal Reserve will hike interest rates next week.
Strategists at Brown Brothers Harriman argue that “a hot CPI print would all but seal a September hike and underpin a firmer USD,” whereas “a cooler reading would strengthen the case for a hold and leave USD vulnerable to a dovish Fed repricing.” BBH experts, however, warn that “even if a September Fed hike becomes a done deal, we doubt USD will make new cyclical highs,” noting that tightening by other major central banks “limits policy divergence, with the ECB widely expected to deliver a 25bps hike tomorrow.”
Technical Analysis: A bearish H&S pattern looms
XAU/USD has trimmed losses, returning to $4,400, yet with price action contained within Tuesday's range, and with the broader bearish structure intact. The precious metal remains capped below the 200-day Simple Moving Average (SMA), with last week's knee-jerk reaction looking like the second shoulder of a bearish Head & Shoulders (H&S) formation.
Momentum indicators in the daily chart are neutral-to-bearish, with the Relative Strength Index (RSI) flat around 50 and the Moving Average Convergence Divergence (MACD) in negative territory, suggesting that rebounds are vulnerable.
Tuesday's low in the mid-$4,300s is holding bears for now and closing the path to the H&S neckline between $4,311 and $4,282, the August 14 and September 2 lows, respectively. A confirmation below those levels brings the August 6 low, at $4,223, into focus. Upside attempts above $4,400, on the contrary, are likely to meet resistance at Tuesday's high of $4,443, ahead of last week's highs around $4,500 and the 200-day SMA at $4,537.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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