Gold Price Forecast: XAU/USD support at $4,000 remains dangerously close
- Gold recovery found sellers at $4,160 before retreating to the $4,120 area.
- Easing trade war fears and a firm US Dollar have crushed precious metals in the last few days.
- XAU/USD is on a downward correction with bears focusing on the $4,000 support area.
Gold bounced up after reaching the target of a Double Top pattern, at $4,005 on Tuesday, but upside attempts have been halted way below previous support, at $4,185, which leaves the immediate bearish trend intact and the $4,000 support area at a short distance.
The announcement that US President Trump will meet its Chinese counterpart Xi Jinping in South Korea next week and the more conciliatory tone of Trump's latest comments towards the Asian country have boosted hopes of a trade deal, which has improved market sentiment, sending precious metals tumbling.
Technical Analysis: Gold’s bearish correction has finally arrived
What goes up has to eventually come down, and Gold is no exception. The precious metal had rallied nearly 35% in the last two months and is now performing a well-awaited correction. The double top at $4,380 and Tuesday’s bearish engulfing candle in the daily chart confirm that view.
The rejection at the $4,160 on Wednesday’s early European session highlights the bearish momentum. The 4-hour RSI is low but not yet at oversold levels, and the USDollar Index is picking up, which adds pressure on the yellow metal and suggests that a retest of the $4,000 support is on the cards.
Further down, the $3945 area, where the pair found support on October 7, 9, and 10, emerges as the next target ahead of the October 2 low, at $3,845. To the upside, the intraday high at the $4,160 area and the October 17 low at $4,185 are closing the path towards the all-time high at $4,380.
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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