Gold Price Forecast: XAU/USD sets to close positively for seventh straight week
- Gold price wobbles around $3,860, but looks set for a weekly positive close.
- The Fed is expected to cut interest rates two more times this year.
- The US ADP Employment Change report signaled weakness in the job market.
Gold price (XAU/USD) trades in a tight range around $3,860 during the European trading session on Friday, slightly below the all-time high around $3,900 posted on Thursday. The precious metal trades broadly firm as the partial closure of the United States (US) government and weakening job market conditions have increased hopes of more interest rate cuts by the Federal Reserve (Fed) in the remaining two policy meetings this year.
Lower interest rates by the Fed bode well for non-yielding assets, such as Gold.
According to the CME FedWatch tool, traders see an 87% chance that the Fed will also cut interest rates by 50 basis points (bps) to 3.50%-3.75% by the end of the year.
The White House memo showed this week that the US Growth Domestic Product (GDP) could decline by $15 billion each week on Washington’s closure. At midnight on Tuesday, Washington went into darkness after Republicans failed to persuade Democrats in the US Senate to support the short-term funding bill.
Though the US Nonfarm Payrolls (NFP) data for September is confirmed not to be released due to the US government shutdown, the ADP Employment Change report for the same month has signaled cracks in the labor market.
On Wednesday, the ADP reported that the private sector removed 32K payrolled workers in September, while it was expected to have hired 50K fresh job-seekers.
Gold technical analysis
Gold price is expected to end the week on a positive note. This will seventh positive closing by the yellow metal in a row. The near-term trend of the Gold price remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around $3,717.20. Upward-sloping trendline from the August 22 low around $3,321.50 will act as key support for the Gold price.
The 14-day Relative Strength Index (RSI) oscillates inside the 60.00-80.00 range, suggesting a strong bullish momentum.
On the upside, the Gold price could extend its upside towards $4,000. Looking down, the 20-day EMA will act as key support.
Gold daily chart
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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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