Gold Price Forecast: XAU/USD eyes weekly closing above the key $2,045 level
- Gold price remains a ‘buy-the-dip’ trade, as the US Dollar weakens post-CPI.
- Geopolitical tensions between West and Iran-backed Houthi rebels spook markets.
- Gold price looks set to break above the 21-day SMA at $2,045 on a weekly closing basis.
Gold price is building on the previous upswing above $2,030 early Friday, as strong support near $2,015 continues to hold the fort. Gold buyers extend control, as the US Dollar fails to capitalize on the escalating geopolitical tensions between the West and Iran-backed Houthi militants.
Gold price draws support from escalating geopolitical risks
Following weeks of attacks on ships in the Red Sea by the Iranian-backed Houthi rebels, disrupting global shipping, the US and UK launched airstrikes late Thursday on Houthi targets in Yemen, hitting radar installations, storage sites and missile launchers.
The Western retaliation occurred even after Houthi leader Abdul Malik Al-Houthi vowed a “big” response if the US and its allies took military action against his group.
US President Joe Biden said he “will not hesitate to direct further measures to protect our people and the free flow of international commerce as necessary.” Japan came in support of the US and British airstrikes to secure the safe passage of vessels near the Arabian Peninsula. Intensifying geopolitical tensions infuse safe-haven flows into the traditional safety net, Gold price.
Meanwhile, the US Dollar is back in the red zone, following a brief spike on higher-than-expected US Consumer Price Index (CPI) data. Data showed headline CPI rose 0.3% last month, for an annual gain of 3.4%, higher than the expected to be 0.2% and 3.2%, respectively.
However, markets still price in about 70% odds for a March Federal Reserve (Fed) interest rate cut, as they believe dwindling Chinese economic recovery and mounting geopolitical risks could raise chances of a US recession, prompting the Fed to stick with the dovish pivot.
China’s exports fell last year for the first time since 2016, underscoring domestic economic concerns, the latest data published by China Customs showed Friday.
The Greenback is also undermined by no plans to prevent a government shutdown next week, as a revolt over spending brewed among hard-right House Republicans while Congress began leaving Washington on Thursday for the long holiday weekend.
The US Treasury bond yields also remain on the defensive, with the benchmark 10-year US Treasury bond yields meandering below the 4.0% level, helping Gold price to stay afloat.
Next of note for Gold price remains the US Producer Price Index (PPI) data and speeches from the Fed officials, as geopolitical developments will be the central focus heading into the extended weekend.
Gold price technical analysis: Daily chart
The short-term technical outlook for Gold price remains almost unchanged, so long as it remains between the 21-day Simple Moving Average (SMA) and 50-day SMA at $2,045 and $2,016 respectively.
The 14-day Relative Strength Index (RSI) indicator has recaptured the midline, suggesting that Gold buyers are likely to have the upper hand. Additionally, the 100- and 200-day SMA Bull Cross confirmed last Friday also remains in play, supporting Gold price.
The immediate resistance is seen at the 21-day SMA at $2,045 should the upbeat momentum gain traction. The next bullish target for Gold price is envisioned at Friday’s high of $2,054, above which doors reopen for a test of the $2,100 barrier.
If Gold sellers fight back control, the initial support is seen at the $2,015 confluence, where the 50-day SMA and Monday’s low coincide. A daily closing below the latter is critical to resuming the downtrend toward the $2,000 mark.
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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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.
