Gold Price Forecast: XAU/USD stands tall at two-month highs above $4,380
- Gold ticks lower from two-month highs at the $4,450 area but remains above previous peaks, at $4,380.
- A moderately softer US CPI has added to the case for a Fed hold in September.
- XAU/USD is going through a corrective reaction within a broader constructive pattern.
Gold (XAU/USD) posts marginal losses on Thursday, after meeting resistance at the $4,450 area, yet with price action holding just above previous highs around $ 4,380 at the time of writing. The moderate US Consumer Price Index (CPI) figures seen on Wednesday have increased pressure on front-end US Treasury yields, and the US Dollar, underpinning demand for precious metals.
Economists at DBS Group Research note US CPI came in "very much in line with market expectations, not strong enough or weak enough to break the DXY Index out of its lower 99.4-100.1 range set after USD/JPY’s sell-off from the joint US-Japan interventions."
Against this backdrop, DBS highlights a marked reassessment of the Federal Reserve's (Fed) policy outlook, and cautions that "America’s weakened fiscal position erodes the yield advantage of US bonds supporting the USD," suggesting that fiscal concerns are increasingly weighing on the Dollar’s traditional rate and yield appeal.
Technical Analysis: Gold is correcting lower from oversold levels
The XAU/USD pair is performing a consolidative correction after reaching heavily overbought levels on intraday Relative Strength Index (RSI) studies. The 4-hour RSI has retreated to 58.81, still at levels consistent with solid bullish momentum, while the Moving Average Convergence Divergence (MACD) has drifted just below zero, hinting at waning upside pressure but not yet overturning the underlying bullish tone.
On the topside, initial resistance is seen at Wednesday's highs at the $4,450 area ahead of the late-May highs near $4,600. On the downside, a break below Tuesday and Wednesday's lows in the $4,360 area would expose deeper supports around $4,230 (August 6,7 lows) and the top of July's trading range, between $4,200 and $4,220.
(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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