Gold Price Forecast: XAU/USD rallies past $4,250 as the US Dollar dives
- Gold hits fresh six-week highs above $4,260, boosted by the US Dollar's weakness.
- Futures markets price anby 85% chance of a 25 bps Fed rate cut next week.
- XAU/USD has reached oversold levels, hinting at a potential consolidation.
Gold (XAU/USD) rallies for the second consecutive day on Monday, reaching fresh six-week highs above $4,250. Investors' expectations that the Fed will cut interest rates further next week are crushing the US Dollar Index, while a moderate risk aversion is supporting safe-haven flows towards precious metals.
A batch of weak US macroeconomic figures released after the US government reopening has strengthened the case for further Fed monetary easing in December, and the dovish comments by Fed officials have confirmed those views. The CME Group’s Fedwatch Tool is pricing in an 85% chance of a quarter-point rate cut in December with two or three more such cuts in 2025.
Technical Analysis: The Next resistance is at the $4,300 area
The technical picture remains positive. Momentum indicators highlight the bullish trend, although the oversold levels at the 4-hour Relative Strength Index warn about a stretched market and the possibility of a consolidation or even a bearish correction.
Bulls are struggling to consolidate above the $4,250 area at the moment. Further up, the $4,300 psychological level and the top of the ascending channel from late October lows, now at $4,305, emerge as the next upside targets.
The intraday low is at $4220. A bearish reaction below that level is likely to be challenged at the November 26 and 27 low, at $4,140, ahead of the November 25 low, at $4,105. The bottom of the channel is now at $4,050.
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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