Gold Price Forecast: XAU/USD retraces losses as US yields and Oil prices ease
- XAU/USD edges up towards $4,200 after bouncing from the $4,140 area on Monday
- Precious metals reverse Monday's losses, favoured by a mild pullback in US Treasury yields and lower Oil prices.
- Gold bulls need to break $4,230 resistance to confirm a bullish reversal.
Gold (XAU/USD) retraces Monday’s losses on Tuesday, favoured by a softer US Dollar (USD) as US Yields ease from highs and Oil prices pull back, with investors awaiting key US inflation reports later in the week for a better assessment of the Federal Reserve’s (Fed) near-term policy. The XAU/USD pair has bounced up from the $4,150 area but remains below the top of the last two weeks' trading range, at $4,230.
The US Dollar Index (DXY), which measures the value of the USD against a basket of six majors, dropped 0.25% on Tuesday, amid a mild pullback in US Treasury yields and a moderate reversal in Oil prices. Correlation studies suggest that precious metals appreciate in these circumstances, although the frail market mood suggests that US Dollar dips are likely to remain limited.
Investors might be trimming US Dollar longs ahead of the release of US Consumer Price Index (CPI) figures due on Wednesday, and the Producer Price Index on Thursday.
Cleveland Fed President (Fed) Beth Hammack reiterated her call for higher interest rates earlier on Tuesday, but with no relevant impact on US Dollar crosses or precious metals. Recent data has practically discarded a Fed rate hike in October, only a 20% chance, according to the FedWatch Tool, but hopes of a December hike are still alive. The market will analyse this week’s data to confirm that scenario.
Technical Analysis: Bulls need to break $4,230 resistance to confirm a trend shift
XAU/USD has returned to the $4,190 area after bouncing from the broken trendline at the $4.150 area on Monday. This is a bullish sign, but it needs confirmation with a successful break of the October top, around $4,230. Momentum indicators on 4-hour charts show a moderately constructive stance, with the Relative Strength Index (14) hovering in neutral-to-positive territory and the Moving Average Convergence Divergence (MACD) indicator stabilizing in mildly positive ground, but the pair seems to need additional impulse to break the overhead resistance.
Above $4,230, the next bullish targets are the September 25 high, at the $4,310 area, and the mid-September highs around $4,400. On the downside, a break of the mentioned trendline, now at $4,135, would give fresh hopes for bears to retest last week's lows, at $4,071, ahead of the support area around the $4,000 psychological level.
(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.