Gold Price Forecast: XAU/USD holds above $3,620, on a soft USD, geopolitical tensions
- Gold bounces up at $3,620, favoured by Fed easing expectations and geopolitical concerns.
- The precious metal remains near record highs despite its overbought condition.
- XAU/USD shows a bearish divergence after having rallied more than10% over the last three weeks.
Gold keeps trading higher on Wednesday despite its overstretched condition and technical signals anticipating a bearish correction. The weak US Dollar, amid rising bets of Fed easing and rising geopolitical tensions in Europe and the Middle East, keeps Bullion’s safe-haven appeal intact.
XAU/USD found buyers at the $3,620 area on early trading on Wednesday and returned to levels beyond $3,650, with Tuesday’s high, at $3,675 on sight. Israel’s attack to the Hamas leadership in Qatar and reports that Poland shot down drones, allegedly Russian in its airspace, have provided additional support to precious metals.
Technical analysis: XAU/USD is ripe for a bearish correction
The technical picture, however, shows signals suggesting an impending bearish correction. The Relative Strength Index is at overbought levels on the Daily and most intraday charts, and the 4-hour graphics reflect a clear bearish divergence, hinting that the upside cycle is exhausted after rallying beyond 10% in the last three weeks.
Bulls are likely to be challenged at Wednesday’s record high of $3,675. Above here, the 261.8% Fibonacci extension of the September 3-4 pullback, at the $3,700 area, seems a plausible target for buyers.
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On the flipside, a bearish reversal below the mentioned lows, at $3,620, is likely to add pressure towards the September 3 high, $3.580, that held bears on Monday. Further down, the September 4 low, at $3,510, would cone into view.
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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