Gold Price Forecast: XAU/USD's rally loses steam below $4,500
- Gold ticks down after failing to break $4,500 on Tuesday.
- Tuesday's lower high and weakening momentum indicators are hinting at a potential bearish reversal.
- Markets remain calm on Wednesday, with investors awaiting US employment data.
Gold (XAU/USD) posts moderate losses on Wednesday and keeps trading near Tuesday’s high, at $4,500, with investors bidding their time ahead of the release of US employment data. Technical indicators, however, are starting to turn lower, which suggests that the precious metal’s rally might be losing momentum.
Geopolitical tensions between Japan and China, and a broadly flat US Dollar Index, are keeping Gold’s downside attempts limited. The focus now is on the US ADP Employment figures and the JOLTS Job Openings, which will set the tone for the Nonfarm Payrolls, and shed some light on the US Federal Reserve (Fed) monetary policy plans
Technical Analysis: Technical indicators are turning lower
XAU/USD is trading at $4,465, at a short distance from Tuesday's high, at $4,500, although the lower high coupled with the weakening technical indicators suggests the posibility of a bearish reversal. The Moving Average Convergence Divergence (MACD) cools from recent peaks but remains in positive territory. The Relative Strength Index (RSI) at 58.72 stands above its midline, reinforcing a modest upside bias.
Bulls, however, need to break¡ $4,500 to confirm the upside trend and shift the focus towards the record highs, at the $4,550 area. On the downside, the December 30, January 2 highs, near $4,405, are likely to provide some support ahead of the December 31 low, at $4,275, and the early December lows, at $4,175.
(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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