Gold Price Forecast: XAU/USD languishes below $4,200 amid high US yields
- Gold bounces up from two-month lows but remains within previous ranges, below $4,200.
- High US yields and the risk-averse market amid the global bonds' selloff are buoying the safe-haven USD
- XAU/USD bulls need to break the $4,230 resistance area to ease bearish pressure.
Gold (XAU/USD) trims some losses on Monday but remains trapped within previous ranges, with upside attempts limited below $4,200 and with two-month lows of $4,110 at a short distance. The recent pullback on the US Dollar Index (DXY) has provided some support for precious metals although the high US Treasury yields are keeping a floor on US Dollar (USD) dips so far,.
US labour market data disappointed on Friday and cooled hopes of Federal Reserve (Fed) monetary tightening in October. Futures markets are now pricing in an 80% chance that the US central bank will stand pat on rates in October, from 30% a week ago, although hopes of a December hike remain little changed.
The negative impact of a softer monetary tightening path has been offset by the risk-averse market mood amid the global bonds sell-off. The US Dollar is drawing support from Euro weakness as France’s borrowing costs escalate, although some market analysts warn that a debt crisis might also take a toll on the USD.
"Higher yields driven by Fed tightening can support the USD. Higher term premia driven by concerns over debt supply, fiscal sustainability, and Treasury-market credibility need not," says the DBS Group in a note.
Technical Analysis: Gold remains below key resistance at $4,230
XAU/USD trades at $4,165 keeping the near-term bearsish trend in place, with price action capped below a previous support level at the $4,230 area, which is also the neckline of a bearish Head & Shoulders (H&S) pattern.
Momentum indicators on the 4-hour chart show some bullish divergence, although upside attempts remain frail so far. The Relative Strength Index (14) stays just below the midpoint, while the moderately positive Moving Average Convergence Divergence (MACD) suggests that bullish momentum remains constructive but mild.
Immediate resistance is seen at the mentioned $4,230 area (September 16 low, October 2 high). Above there, the pair might find some resistance at the September 25 high near $4,315, although the next relevant bullish target would be the September 11 and 18 highs, just above $4,500.
On the downside, last week's floor, near $4,110, is likely to test bears' confidence. Frther down the late July lows at the $4,000 psychological area, and the year-to-date low around $3,950 will be targeted.
(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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