Gold Price Forecast: XAU/USD holds gains above $3,340 with US inflation on tap
- Gold found support at $3,340 and is regaining lost ground, approaching $3,380 highs.
- The US Dollar softens with US treasury yields pulling back from recent highs ahead of the US CPI release.
- From a wider perspective, XAU/USD is moving sideways, halfway through the last few months' trading range.
Gold (XAU/USD) correction has been limited at $3,340, and the precious metal is retracing previous losses on Tuesday, approaching three-week highs at $3,380 as US Treasury yields and the US Dollar pull back from recent highs ahead of the US CPI release.
The US Dollar Index, which measures the value of the USD against six major currencies, is trading 0.15% lower on the day after a three-day rally. Investors are bracing for a significant increase in inflation amid pressure from US President Trump to cut interest rates, which might increase if the upside risks for inflation forecasted by the bank do not materialise.
Technical analysis: XAU/USD consolidating halfway through the recent range
The XAU/USD technical picture is cloudy, as the pair has been experiencing choppy and sideways trading for the last few months. Price action is currently hovering in the middle of the range, and technical indicators on the daily chart are indicating a lack of a clear trend.
The 4-hour chart shows a moderate positive stance, with the RSI steady above the 50 level and downside attempts finding buyers so far. Bulls are focusing on the July 14 high, at $3,375, which is closing the path towards the June 18 and 23 highs, at the $3,400 area, and the June 16 peak, at $3,450.
On the downside, a retreat below the July 14 low at $3,340 might find support at the July 10 low at $3,3120 and the July 9 low, at $3,285, ahead of the May 28 and June 30 lows, at $3,245.
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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