Gold Price Forecast: XAU/USD buyers stay hopeful whilst above the $2,016 support

  • Gold price is finding its feet near $2,020 amid a risk-off mood early Monday.
  • US Dollar holds its recovery, as the US Treasury bond yields remain sluggish.  
  • A bullish daily technical setup continues to favor Gold price upside.

Gold price is holding its calm near $2,020 in the Asian session on Monday, following a sharp pullback that ended a volatile week on Friday. Progressing toward the pre-Christmas lull, Gold price awaits the key US inflation report due later this week for repricing of the US Federal Reserve (Fed) interest rate cut expectations for next year.

Gold price calms down, as focus shifts to US PCE inflation this week

Ahead of Friday’s US PCE Price Index inflation data, the Bank of Japan’s (BoJ) monetary policy decision will hold the key for fresh trading impetus in the US Treasury bond yields and the US Dollar, eventually impacting Gold price.

Markets are widely expecting the BoJ to move away from its negative interest rate policy (NIRP) and a hint confirming the same is expected from the Japanese central bank when it concludes its two-day monetary policy review on Tuesday.

Any surprise in the BoJ’s policy announcements is likely to spike up volatility around the USD/JPY pair, having a US Dollar-led ‘rub-off’ effect on the Gold price.

In the meantime, Gold price will continue to find support from the dovish Fed pivot, as the US central bank affirmed bets of rate cuts next year after keeping the interest rates unchanged between the 5.25% to 5.50% target range.

At the time of writing, the US Dollar is clinging to the previous recovery but subdued US Treasury bond yields are weighing on the Greenback, cushioning the downside in Gold price.

Gold price booked a weekly gain but ended Friday in the red, as investors took profits off their long positions, following an eventful Fed week while gearing up for this week’s US PCE inflation data and thin trading conditions.

Gold price technical analysis: Daily chart

Despite Fiday’s pullback in Gold price from near eight-day highs of $2,048, the path of least resistance still remains to the upside.

The daily technical setup for Gold price will conitnue to favor bullish traders so long as the 14-day Relative Strength Index (RSI) indicator holds above the midline and the price manages to defend the 21-day Simple Moving Average (SMA) at $2,016.

A daily closing below the latter could fuel a fresh decline toward the 50-day SMA at $1,982. However, the $2,000 threshold could be a tough nut to crack for Gold sellers.

On the flip side, acceptance above the $2,040-$2,050 region is critical to resuming the Gold price recovery toward the $2,100 psychological level. The next bullish target is envisioned at the all-time highs of $2,144.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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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