Gold Price Forecast: XAU/USD aims for 21-day SMA on the road to recovery
- Gold consolidates weekly losses above $4,000 early Friday, eyes third straight monthly gain.
- US Dollar sits at two-month highs on fading December rate cut bets and mixed markets.
- Gold’s daily technical setup points to further recovery, but the 21-day appears to be a tough nut to crack.
Gold is consolidating weekly losses in Asian trades on Friday, having stalled Thursday’s turnaround just shy of the $4,050 mark.
Gold takes a breather before the next push north
Gold buyers seem to catch a breather following the previous upswing before the end-of-the-week and - month profit-taking wave creeps back in.
Markets resorted to taking profits off the table after the recent tremendous correction in Gold in anticipation of a potential US-China trade deal, while taking account of a less dovish US Federal Reserve (Fed) monetary policy decision.
The Fed on Wednesday delivered the expected 25 basis points (bps) interest rate cut, with Chair Jerome Powell noting that policymakers are likely to become more cautious if it deprives them of further job and inflation reports.
Markets are now pricing in a 72.8% probability of a 25 bps Fed rate cut in December compared with a 91.1% chance a week ago, the CME Group's FedWatch tool shows.
The Gold rebound was also powered by the latest World Gold Council report that showed, “global gold demand rose 3% year-on-year to 1,313 metric tons, the highest quarterly number on record, in the third quarter as investment demand soared,” per Reuters.
What remains to be seen is if Gold could regain the recovery momentum as the US Dollar (USD) stands tall at two-month highs against its major currency rivals.
Additionally, the continued contraction in the Chinese manufacturing sector weighs negatively on Gold. China is the world’s top yellow metal consumer. The official Manufacturing purchasing managers' index (PMI) fell to 49.0 in October from 49.8 in September, a six-month low.
That said, the downside in Gold will likely be cushioned by lingering US economic and fiscal concerns as the government shutdown shows no signs of reopening and markets are flying blind amid the data drought.
Gold price technical analysis: Daily chart
The daily chart shows that Gold price recaptured the $4,000 barrier on a closing basis on Thursday, reviving the bullish potential.
Adding credence to the upside bias, the 14-day Relative Strength Index (RSI) stays bullish after breaking above the 50 level.
The important resistance levels to watch now are the $4,050 psychological level and the 21-day Simple Moving Average (SMA) at $4,078, followed by $4,129 – the 23.6% Fibo level of the same ascent.
To the downside, the immediate support is seen at the 38.2% Fibo level at $3,973, below which a test of the 50% Fibo of $3,847 will be inevitable
Deeper declines will challenge the 50-day SMA at $3,822.
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.
