Gold Price Forecast: XAU/USD defends the $2,000 mark but for how long?
- Gold price is struggling just above $2,000 as the risk-off mood extends into Thursday.
- US Dollar retreats with bond yields, despite Middle East geopolitical risks and easing Fed cut bets.
- Gold price leans bearish, with $1,975 eyed as the next crucial support.
Gold price is trying hard to find a floor just above $2,000 early Thursday, despite a broad US Dollar (USD) pullback and ongoing Middle East geopolitical tensions. Attention turns toward the mid-tier US economic data and speeches from US Federal Reserve (Fed) policymakers for fresh trading impetus.
Gold price languishes near five-week lows
Risk sentiment continues to remain in a weak spot, in the wake of a likelihood of no further big stimulus from China, Red Sea geopolitical tensions and easing bets for aggressive Fed rate cuts. However, the US Dollar fails to benefit from the safe-haven flows, as the US Treasury bond yields pullback from multi-week highs remains a drag.
This somewhat turns in favor of Gold price, as it looks to defend the $2,000 barrier, following two straight days of sharp declines. At the time of writing, the US Dollar Index is losing 0.18% on the day to trade at 103.30, extending the retreat from five-week highs of 103.70. The benchmark 10-year US Treasury bond yields is off the highs but hold the fort above the 4.0% level.
After late Tuesday’s strikes by the US military in Yemen against the anti-ship ballistic missiles in a Houthi-controlled part of the country, Houthi rebels targeted a US-owned cargo ship with a kamikaze drone in the Red Sea on Wednesday after Washington said it would re-designate the Houthis to its list of “specially designated global terrorists,” per BBC News.
Meanwhile, strong US Retail Sales data supported the Fed policymakers’ pushback against aggressive Fed rate cut expectations. Retail sales in the US increased 0.6% last month, buoyed by a pickup in clothing and accessory stores as well as online nonstore businesses. The data exceeded the market forecast for a 0.4% rise.
Looking ahead, the Gold price action will likely remain driven by the Fed expectations, as investors eye the mid-tier US Jobless Claims and housing data for fresh policy hints. Also, in focus remains the speeches by the Fed officials before the Fed’s ‘blackout period’ begins on Saturday. Geopolitical developments will also play a pivotal role, driving the broader market sentiment, eventually impacting the US Dollar and the Gold price.
Gold price technical analysis: Daily chart
Following Tuesday’s downside break from the triangle and a sustained move below the 50-day Simple Moving Average (SMA), then at $2,021, Gold sellers flexed their muscles to test the $2,000 threshold.
The 14-day Relative Strength Index (RSI) indicator remains below the midline, keeping the door ajar for more downside.
If the $2,000 mark support fails, the next strong cushion is seen around the $1,975 region. But Gold buyers could find temporary support near $1,990 before that latter is challenged.
On the flip side, Gold price needs acceptance above the 50-day SMA support-turned-resistance to initiate a recovery toward the triangle support at $2,037. Further up, the confluence of the 21-day SMA and the triangle resistance at $2,045 could challenge bearish commitments.
Fresh buying opportunities will generate above the latter, allowing the Gold price to retest the $2,050 psychological level.
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.
Premium
You have reached your limit of 3 free articles for this month.
Start your subscription and get access to all our original articles.
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.
