Gold Price Forecast: XAU/USD rally loses steam and approaches $3,340 support area
- Gold trims gains as the Dollar picks up ahead of the US NFP reading.
- US economy is expected to have created 130,000 jobs in May.
- XAU/USD shows a bearish divergence, which points to a weaker bullish momentum.
Gold (XAU/USD) is practically flat on Friday, trapped within the last few days' trading range. The broader trend remains positive, but the failure to breach resistance at the $3.400 area this week has shifted the focus towards the $3,440 support area.
The precious metal is struggling to extend gains on Friday, as the US Dollar pares some losses with investors cautious of betting against the Greenback ahead of the all-important US Non Farm Payrolls report, due later today.
US payrolls are expected to have increased by 130,000 in May, following a 177.000 nincrease in April. Markets, however, are wondering if these numbers are not too optimistic, in light of the grim ADP Employment and PMI figures released earlier this week.
XAU/USD Technical Analysis: Bullish momentum is losing steam
Technical indicators show prices moving within an ascending channel but with upside momentum losing steam. A bearish divergence in the 4-Hour chart and a potential Head & Shoulders pattern point to the possibility of a bearish correction.
Price action is now standing at the $3,440 area, which is the neckline off the mentioned H&S figure and the bottom of the ascending channel from mid-May lows..
On the downside, immediate support is at the $3,285 area and $3,345. Below here, the H&S measured target is $3,290. On the upside, a break of the mentioned $3,400 resistance cancels this view and clears the way towards the May 6 high, at $3440.
XAU/USD 4-Hour Chart
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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