Gold Price Forecast: Deeper correction or dip-buying likely in XAU/USD?
- Gold licks its wounds early Thursday, following Wednesday’s nearly 1% correction.
- The US Dollar holds the recovery momentum amid geopolitical woes, mixed US data.
- Technically, Gold remains a ‘buy-the-dips’ trade while the daily RSI stays bullish and the 21-day SMA holds.
Gold is nursing losses near $4,450 in Asian trading on Thursday, having suffered about a 1% correction from weekly highs of $4,500 on Wednesday. All eyes remain on the geopolitical developments and the incoming US jobless claims data for fresh trading directives.
Gold: Attention turns to US Nonfarm Payrolls
Gold is on the defensive early Thursday, as markets assess the mixed US economic data published on Wednesday, while the US Dollar (USD) clings to recovery gains, exerting bearish pressures on the bright metal.
Data released by the Bureau of Labor Statistics (BLS) showed on Wednesday, Job Openings, a measure of labor demand, dropped 303,000 to 7.146 million by the last day of November, against expectations of a 7.6M figure.
The ADP report showed that private employment in the United States (US) increased by 41,000 jobs last month after a revised decrease of 29,000 in November. The market forecast was for a 47,000 growth.
Meanwhile, the Institute for Supply Management’s index of services rose 1.8 points to 54.4, the highest since October 2024, the group said Wednesday.
However, the downside in Gold remains cushioned as the bets for two US Federal Reserve (Fed) interest rate cuts appear intact following the latest data flow.
Markets continue to predict 61 basis points (bps) of rate cuts this year, according to data compiled by LSEG.
Additionally, China's central bank extended its gold-buying streak to a 14th straight month in December, according to official data, providing some comfort to Gold buyers.
The main factor that could keep the ‘buy-the-dips’ trades intact for Gold is geopolitics. The focus is once again on the Greenland issue, with White House separately having confirmed discussions about acquiring Greenland, including potential military involvement.
This comes after Venezuelan President Nicolas Maduro's capture over the weekend by the US forces.
Moreover, geopolitical tensions between China and Japan also grab attention after the former on Monday banned Japanese exports of dual-use items with potential military uses, citing national security concerns.
In response, Japan said that the ban imposed by China was “absolutely unacceptable and deeply regrettable”.
That being said, the next clear directional move in Gold hinges on Friday’s all-important US Nonfarm Payrolls report. The US labor data could offer fresh insights into the Fed’s easing trajectory for the year ahead, significantly impacting the Greenback and the non-yielding Gold.
Gold price technical analysis: Daily chart
In the daily chart, the 21-day Simple Moving Average (SMA) climbs above the 50-, 100-, and 200-day SMAs, with all slopes rising as price holds above them. This bullish alignment reinforces buyers’ control. The Relative Strength Index (RSI) prints 59.87, above the 50 midline, suggesting firm momentum without overbought conditions. The 21-day SMA at $4,373.77 offers initial dynamic support.
Holding above the medium- and long-term averages keeps the trend bias positive. A dip could find support at the 50-day SMA at $4,221.80, while the 100-day SMA at $4,008.18 underpins the broader trend. The 200-day SMA at $3,659.96 remains a distant floor. A close below the 21-day SMA would shift the tone toward consolidation, while sustained trade above these rising averages would leave the path open for further extension.
(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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Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
