Gold Price Forecast: XAU/USD extends losses with bears targeting $4,400
- Gold extends losses for the second consecutive day and nears the $4,400 area.
- Precious metals remain vulnerable as geopolitical tensions take a back seat.
- Technical indicators show a growing bearish momentum.
Gold (XAU/USD) deprecates for the second consecutive day on Thursday, after being rejected at $4,500. Bears are looking at a previous resistance area, at $4,400, amid generalised weakness for precious metals.
Investors seem to have brushed off concerns about the rising geopolitical tensions in different regions of the world, from Venezuela to China, Iran, and Greenland. The focus has shifted to the key US Nonfarm Payrolls release, due on Friday, which is expected to clarify the scope of the US Federal Reserve’s monetary easing cycle.
Technical analysis: Indicators highlight a growing bearish momentum
XAU/USD trades at $4,428.46, approaching the $4,400 area, where the 100-period Simple Moving Average (SMA), which has supported the pair's rally since mid-November, crosses the December 31 and January 2 highs. The lower high this week and technical indicators add to the case of a deeper reversal.
The Moving Average Convergence Divergence (MACD) histogram has slipped into negative territory, and the MACD line has crossed below the Signal line, a negative signal. The Relative Strength Index is dipping below the key 50 level, entering bearish territory.
A confirmation below the mentioned $4,400 area opens the path towards January 2 lows at $4,309, and the December 16, 31 lows near $4,270. Immediate resistance is at Tuesday's high, near $4,500, which closes the path towards the all-time high, at $4,449, hit on December 26
(The technical analysis of this story was written with the help of an AI tool)
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.
Recommended Articles
