Gold Price Forecast: XAU/USD fails at $3,440 and approaches $3,400 support
- Gold prices decline amid lower demand for safe-haven assets.
- Ebbing concerns about escalating tensions in the Middle East have brought risk appetite back to the market.
- XAU/USD maintains its bullish trend intact while above $3,400.
Gold (XAU/USD) is correcting lower after rejection at the $3,440 resistance area on Friday. The pair maintains the upside structure in place, but easing fears that the Iran-Israel conflict might escalate into a regional war have undermined demand for safe havens, like Gold, in favour of riskier-perceived assets.
The war between Israel and Iran entered its fourth day with no signs of an end in sight. The worst fears, however, have not crystallized, the conflict remains limited, and US interests have not been targeted. This led to a risk rally on Monday, retracing most of Friday’s moves, and pushing Gold prices lower.
Technical analysis: XAU/USD focus has shifted to the $3,400 support
The pair is on a corrective reversal from a key resistance level at $3,440, where the top of the ascending wedge channel from mid-May lows meets the May 6 high. This is a potentially bearish figure, but technical indicators are still in positive territory.
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The precious metal is now in a bearish correction from the mentioned $3,440, aiming to a key support level at $3,400 (June 5 high). A bearish continuation below here would bring the wedge bottom into focus, now at $3,350 and June 11 lows at $3,340.
On the upside, a confirmation above $3,440 would clear the path towards the all-time high at $3,500.
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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