Gold Price Forecast: XAU/USD holds immediate support below $4,000 as US Dollar corrects
- Gold price recovers to near $4,050 as the US Dollar corrects.
- The odds of the Fed delivering at least two interest rate hikes this year have slightly diminished.
- A decline in oil prices has anchored global inflation expectations.
Gold price (XAU/USD) trades 0.6% higher to near $4,050 during the European trading session on Friday. The precious metal recovers after discovering support near $3,960 in the past two trading days. The yellow metal gets some relief after a long underperformance as the US Dollar (USD) loses steam, with traders reconsidering hawkish Federal Reserve (Fed) bets.
Technically, a correction in the US Dollar brings favorable risk-reward opportunities for the Gold price.
At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.25% lower to near 101.20. The DXY has corrected from its yearly high of 101.80 posted on Wednesday.
According to the CME FedWatch tool, the odds of the Fed delivering at least two interest rate hikes this year are 41.7%, down from 50.2% seen a week ago.
Traders have trimmed hawkish Fed bets slightly as oil prices have returned to pre-war levels due to an increase in energy flows through the Strait of Hormuz, a scenario that would anchor global inflation expectations.
Meanwhile, the US core Personal Consumption Expenditure Price Index (PCE), which is the Fed’s preferred inflation gauge, accelerated to 3.4% Year-on-Year (YoY) in May, as expected, from 3.3% in April.
Gold technical analysis
XAU/USD trades higher at around $4,050, but maintains a bearish near-term bias as price holds below the 20-period exponential moving average (EMA) at $4,232.13. The metal has been retreating from recent highs, and the EMA now acts as overhead supply, hinting that rallies could be capped while below this barrier.
The Relative Strength Index (RSI) at 34.63 sits just above oversold territory, suggesting negative momentum persists but with some scope for a corrective bounce.
On the topside, the March 23 low at $4,098.88 is the immediate resistance, which the Gold price needs to break for a mean-reversion move to near the 20-period EMA around $4,232. Looking down, the Gold price could extend its decline towards the October 28 low at $3,886.62 and the September 23 high at $3,791.12 if it drops below the June 24 low at $3,959.51.
(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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