Gold Price Forecast: XAU/USD bounces to $4,370, but upside momentum is fading
- XAU/USD picks up to session highs at $4,370 after bouncing from $4,324 lows.
- Broad-based USD weakness ahead of the release of the Fed minutes is providing some support to Precious metals.
- Technical indicators highlight fading bullish momentum.
Gold (XAU/USD) trades moderately higher on Wednesday and returns to the $4,370 area, after finding buyers near the $4,300 area on Tuesday. A broad-based US Dollar weakness amid lower US yields ahead of the release of July’s Federal Reserve (Fed) monetary policy meeting is providing some support to precious metals, although the technical picture hints at fading bullish momentum.
Analysts at OCBC agree that “gold’s rebound has lost some momentum as the renewed rise in oil prices added to pressure from higher long-end US yields,” with the move in both markets curbing the metal’s recent advance. Looking ahead, OCBC experts affirm that “for the gold rally to regain traction, oil and yields need to stabilise, or a stronger pickup from investment demand,” suggesting near-term performance will hinge on whether inflation-related drivers and investor flows turn more supportive.
Technical Analysis: Tuesday's bearish engulfing candle is a bearish sign
XAU/USD trades at $4,367 at the time of writing after bouncing from $4,324.Tuesday's bearish engulfing candle in the daily chart, however, is a bearish sign that hints at a potential trend shift. Momentum indicators remain in bullish territory but highlight a waning impetus, with the Relative Strength Index (RSI) pulling back below 60 and the Moving Average Convergence Divergence (MACD) histogram showing contracting bars.
On the downside, immediate support aligns with the August 14 low, at $4,311, followed by a broader demand area around $4,220 (June 22 high, August 6 low).
Bullish attempts, on the other hand, are likely to face significant resistance at the area between the top of the last two weeks' trading range, around $4,450, and the 200-day Simple Moving Average (SMA) at $4,510. Beyond that, the next resistance is at the late May highs, near $4,600.
(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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