Gold Price Forecast: XAU/USD struggles around $3,300, on verge of triangle breakdown
- Gold price trades cautiously near the key level of $3,300 ahead of the Fed’s monetary policy announcement.
- Investors expect the Fed to leave interest rates steady on Wednesday.
- The US-EU tariff deal has diminished the safe-haven demand for the Gold price.
Gold price (XAU/USD) struggles to gain ground after a four-day sell-off near the round level of $3,300 during the European trading session on Tuesday. The precious metal faces selling pressure as demand for safe-haven assets has diminished, following the announcement of a tariff deal between the United States (US) and the European Union (EU).
The US-EU trade agreement confirmation has diminished fears of a disruption in the global trade war. However, the demand fora the US Dollar (USD) has improved, despite being a safe-haven asset. The USD gains as fears of a supply chain disruption in the US economy have faded after the deal.
During the European session, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, advances to near 99.00, the highest level seen in a month.
Technically, a higher US Dollar makes the Gold price an expensive bet for investors.
Meanwhile, investors await the Federal Reserve’s (Fed) monetary policy announcement on Wednesday. According to the CME FedWatch tool, the Fed is certain to leave interest rates steady in the range of 4.25%-4.50%. This would be the fifth straight meeting where the Fed will hold interest rates at their current levels.
Higher interest rates by the Fed for longer bode poorly for non-yielding assets, such as Gold.
Gold technical analysis
Gold price trades near the lower border of the Symmetrical Triangle formation on a daily timeframe around $3,300, which is plotted from the May 15 low of $3,120.83. The higher border of the above-mentioned chart pattern is plotted from the April 22 high around $3,500
The 20-day Exponential Moving Average (EMA) around $3,347.70 acts as a key barrier for the Gold price.
The 14-day Relative Strength Index (RSI) oscillates inside the 40.00-60.00 range, indicating a sideways trend.
Looking up, the Gold price will enter an unchartered territory if it breaks above the psychological level of $3,500 decisively. Potential resistances would be $3,550 and $3,600.
Alternatively, the Gold price would fall towards the round-level support of $3,200 and the May 15 low at $3,121, if it breaks below the May 29 low of $3,245
Gold daily chart
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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