Gold Price Forecast: XAU/USD tests key support at $4,070 amid high Oil prices
- XAU/USD drops sharply on Thursday to test the lowest levels in nearly three months, at $4,070.
- The surging Oil prices have offset the positive impact of lower US Treasury yields.
- Below $4,070, bears will be attracted by the $4,000 psychological level.
Gold (XAU/USD) drops sharply on Tuesday to test the bottom of the last three weeks’ trading range, and a nearly three-month low at $4,070, which so far remains intact. Precious metals remain on their back foot on Thursday, weighed by higher Oil prices, as the Middle East conflict threatens to complicate further and Yemeni Houthi militias keep pounding Saudi oilfields
Brent Oil is testing five-month highs around $109.00 and WTI Crude approaches $100 following a New York Times report suggesting that the US and Israel might be considering renewing coordinated attacks on Iran after the US midterm election.
Meanwhile, attacks on Saudi Oil infrastructure from the Iran-backed Houthis continue. A drone attack on Aramco’s Shaybah Oil field has reportedly killed two people and reactivated concerns about supply disruptions. All this is contributing to the recent escalation in Crude prices and offsetting the traditional positive impact on precious metals from the pullback in US Treasury yields.
Technical Analysis: Bears test $4,070 with $4,000 in sight
XAU/USD trades at $4,085.58, just above a key support area around $4,070 that has been containing downside attempts since late September. Momentum indicators on the 4-hour chart support the bearish view as the Relative Strength Index (14) dips toward the low-30s, and the Moving Average Convergence Divergence (MACD) remains below zero.
A confirmation below the mentioned $4,070 area (October 7, 14 lows) would bring the late July and early August lows around the $4,000 psychological area into focus. Upside attempts, on the contrary, are likely to be tested at Tuesday's and Wednesday's highs around $4,150, ahead of the $4,200 area (October 13 and 16 highs), and the range top around $4,230.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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