Gold Price Forecast: XAU/USD hovers below $5,000, recent recovery losses steam
- Gold extends its reversal below $5,000 from $5,091 highs on Wednesday.
- The US Dollar appreciates due to risk aversion and uncertainty ahead of the ECB and BoE decisions.
- XAU/USD is struggling to take off from the $4790 support area.
Gold (XAU/USD) is accelerating its reversal from Wednesday’s highs near $5,100, trading at $4,865 at the time of writing, with downside attempts contained below $4,790 for now. Precious metals are losing ground despite the risk-averse sentiment, as the US Dollar appreciates across the board.
The Greenback is acting as a safe-haven again, drawing support in risk-off markets, as the quarterly earnings from US tech giants failed to convince investors, triggering a sell-off in the sector that has dragged down equity indexes across the globe.
Beyond that, investors’ cautiousness ahead of key monetary policy decisions by the European Central Bank (ECB) and the Bank of England (BoE) due later on Thursday is weighing on the Euro and the Pound, providing an additional impulse to the US Dollar.
Technical Analysis
The 4-hour chart, XAU/USD, shows price action trapped between Fibonacci retracement levels with technical indicators pointing to a weakening bullish momentum.
Price action has dropped below the 100-period Simple Moving Average (SMA), and the Moving Average Convergence Divergence (MACD) line is attempting to cross below the Signal line, a bearish sign. Apart from that, the Relative Strength Index (RSI) has dropped below the 50 midline, entering negative territory.
Immediate support is seen at the intra-day low of $4,790. Further down, the intraday support near the $4,600 level is likely to attract bears.
On the upside, a confluence of resistances, between the January 29 low, at the $5,100 area, and the 61.8% Fibonacci retracement of last week's sell-off, at $5,135, is likely to challenge bulls. Above those levels, the next target would be the 78.6% Fibonacci retracement, at the $5,330 area.
(The technical analysis of this story was written with the help of an AI tool.)
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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