Gold Price Forecast: XAU/USD attempts another run toward record highs, will it succeed?
- Gold sees dip-buying, set for fourth straight weekly gain on Friday.
- US Dollar rebounds on short covering, despite the risk rally on global stocks.
- The focus now remains on trade headlines and US Consumer Sentiment data.
- Technically, Gold remains at a risk of a sharp correction amid extreme overbought conditions.
Gold is reversing the previous decline to retest the $3,650 barrier early Friday.
Traders turn their attention to the preliminary Michigan Consumer Sentiment data amid rising bets for aggressive Federal Reserve (Fed) interest rate cuts this year.
Gold: Record highs remain in sight
Gold is back in the green zone, but remains within this week’s range. Buyers gather pace before resuming the record rally.
Despite a pause in the US Dollar (USD) downtrend and a risk-on market profile, Gold finds fresh haven demand as fresh tariff headlines from US President Donald Trump weigh on investors’ sentiment.
The Financial Times (FT) reported late Thursday that the US plans to urge Group of Seven (G7) nations to hit India and China with sharply higher tariffs for Russian oil purchases in an attempt to force Moscow into peace talks with Ukraine.
Meanwhile, markets are widely expecting the Fed to deliver three rate cuts this year, with chances of a jumbo rate reduction still alive for the September meeting.
Markets continue pricing in about a 92% chance of a 25 basis points (bps) rate cut at the Fed's September meeting and an 8% probability of a 50 bps rate cut, according to the CME Group's FedWatch tool.
The dovish narrative remains intact as weakening labor market conditions overshadow sticky inflation, bolstering the non-interest-bearing Gold.
The US Consumer Price Index (CPI) increased by 0.4% over the month in August, double the 0.2% rise recorded in July. This pushed the annual inflation rate to 2.9%, in line with the market expectations.
Later in the day, the US Consumer Sentiment and Inflation Expectations data could provide fresh cues on the Fed’s path forward on rates, impacting the USD-denominated Gold.
However, trade headlines will also be closely monitored, while Gold eyes a fourth consecutive weekly advance.
Gold price technical analysis: Daily chart
The daily chart shows that Gold firms up again, notwithstanding the extreme overbought conditions, as displayed by the 14-day Relative Strength Index (RSI), currently near 77.50.
If sellers fight back control, the immediate support is seen at the $3,600 round figure, below which this week’s low of $3,578 could be tested.
A sustained break below the latter will open up a fresh downside toward the $3,550 psychological mark.
However, if buyers stand tall, the record high of $3,675 will be challenged, with the next resistance seen at the $3,700 level
Further up, the $3,750 region could challenge the bearish commitments.
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.
