Gold Price Forecast: XAU/USD clings to a key support area around $4,300
- XAU/USD picks up from lows near $4,300 but is failing to find acceptance above $4,350.
- High energy prices and rising hopes of a Fed rate hike keep precious metals under pressure.
- Gold is hovering right above the neckline of a nearish H&S pattern.
Gold (XAU/USD) nudges higher on Friday, as the US Dollar’s (USD) recovery stalls ahead of the US Consumer Price Index (CPI) release, due later in the day. The precious metal, however, is struggling to return above a previous support area around $4,350, which leaves the key support area around $4,300 exposed.
Bullion rallies remain subdued amid high Oil prices, with both Brent Crude and WTI trading at their highest levels since May, boosting global inflation and forcing central banks to tighten their monetary policies.
In the US, Producer Price Index (PPI) data released on Thursday confirmed market expectations of an acceleration to a 5.4% year-on-year (Y-o-Y) rate in August, from 4.8% in July. Likewise, the Core PPI rose to 4.6% Y-o-Y from 4.3% in the previous month. Investors have ramped up their bets on a Federal Reserve (Fed) rate hike next week, and the focus shifts now to the US Consumer Price Index (CPI) release, due later today, which will be carefully analysed to confirm those hopes.
Technical Analysis: Hovering above the neckline of a bearish H&S pattern
XAU/USD trades at $4,344, retaining a mildly bearish near-term bias as it clings to the neckline of a bearish Head & Shoulders (H&S) pattern. Momentum indicators in the daily chart hint at moderate, but gradually growing bearish pressure as the Relative Strength Index (RSI) treads further below the key 50 level and the Moving Average Convergence Divergence (MACD) extends within negative levels.
Thursday's recovery attempt is struggling to extend beyond the September 8 and 9 lows in the $4,350 area, which closes the path towards Thursday's highs near, and the more strategic area around the 200-day SMA at $4,538.
A bearish reaction below September's trading floor, at $4,282, on the contrary, would activate the H&S pattern and increase pressure towards the August 6 low, near $4,220. The H&S's measured target lies just below the year-to-date lows in the $3,940 area.
(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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