Gold Price Forecast: XAU/USD rallies to $4,200 as US yields retreat
- Gold hits session highs above $4,200 after bouncing from $4,066 lows earlier this week.
- Lower US Treasury yields are weighing on the US Dollar and providing support for precious metals.
- Hawkish comments by Fed officials are keeping US Dollar's dips limited so far.
Gold (XAU/USD) accelerates its recovery on Friday, favoured by a softer US Dollar, amid a moderate pullback in US yields. The XAU/USD pair has reached session highs just above $4,200 during the European session, from two-month lows at $4,066 on Wednesday, before easing to the $4,183 area at the time of writing.
US Treasury yields retreated on Thursday following the solid demand witnessed in a US 30-year Treasury bond auction. Investors’ willingness to buy US Government bonds despite the ballooning debt has calmed markets, flattening the US yield curve, and triggering a mild risk appetite that is hurting the safe-haven US Dollar.
Oil prices, however, remain at high levels, with the barrel of Brent crude still above the $100 level, pushing inflation higher, and urging central banks to tighten their borrowing costs. St. Louis Fed President Alberto Musalem endorsed this view earlier on Friday, affirming that “more monetary policy will be needed” to bring inflation to the 2% target, comments that are likely to limit US Dollar dips.
Technical Analysis: XAU/USD pierces the downtrend resistance from August's highs
XAU/USD trades at $4,187.01, holding an immediate bullish bias as it stands above the reclaimed downtrend resistance from August highs, although it is still testing the resistance area around $4,200, which has held bulls since late October.
Momentum supports the constructive tone, with the 4-hour Relative Strength Index (14) hovering near 60 and Moving Average Convergence Divergence (MACD) extending further into positive territory.
Gold bulls are likely to meet significant resistance between $4,190 and a support area, now turned resistance around $4, 240. A confirmation above this area would boost hopes of a deeper correction and bring the September 25 highs, at the $4,300 area, into play.
On the downside, first support is provided by the former trend-line break level around $4,170, before the mentioned two-month low, near $4,070. Further down, the $4,000 psychological area would come into focus.
(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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