Gold Price Forecast: XAU/USD looks primed for a correction from record highs
- Gold price consolidates near fresh record highs of $2,729 ahead of Fedspeak.
- The US Dollar extends its corrective decline, as Treasury bond yields recovery falters.
- The daily RSI holds within the overbought territory, a correction in the offing?
The gold price is holding the renewed upside near a fresh record high of $2,729 early Monday. Gold buyers take a breather amid rife Middle East tensions and the uncertainty around the US presidential election, awaiting a fresh trading impetus from the upcoming speeches from US Federal Reserve (Fed) policymakers.
Gold price appears vulnerable, as Fedspeak loom
The US Dollar (USD) maintains its corrective mode intact, tracking the renewed weakness in the US Treasury bond yields, as Chinese stocks recover ground after the People’s Bank of China (PBOC) delivered a bigger-than-expected cut to the one-year Loan Prime Rate (LPR) from 3.35% to 3.10%.
Markets were unimpressed in an initial reaction to the PBOC policy announcements but they now remain expectant of more stimulus coming in from China to support the economic growth. Meanwhile, China’s stimulus optimism alongside the persistent tensions between Israel and Iran kept the Gold price underpinned.
According to Lebanese media outlets, Israel carried out a new wave of air strikes on southern Beirut after it announced the targeting of Hezbollah’s al-Qard al-Hassan financial institution’s offices. Additionally, The US government has launched an investigation into the unauthorized release of classified documents detailing Israel’s military preparations for a potential strike on Iran. Investors prefer to flock to safety in the traditional safe-haven Gold price, in times of geopolitical turmoil.
However, the US Dollar could see resurgent demand on the revival of the ‘Trump rally’. Markets seem optimistic that Republican nominee Donald Trump will win the 2024 US presidential elections. Trump’s fiscal and trade policies are seen as inflationary and positive for the Greenback.
In the absence of top-tier US economic data releases due on Monday, the focus will remain on risk sentiment and the speeches from several Fed policymakers for a fresh directional impetus to Gold price.
Gold price technical analysis: Daily chart
Gold price challenged the $2,730 level on the renewed upside this Monday.
The 14-day Relative Strength Index (RSI) has turned flattish while holding above the 70 level – the overbought zone.
This suggests that buyers are facing exhaustion and that a pullback could be in the offing.
The immediate support, therefore, is seen at Friday’s low of $2,692, below which a drop toward the previous resistance now turned support at $2,670 cannot be ruled out.
A sustained break below that level will expose sellers to the key 21-day Simple Moving Average (SMA) support at $2,653.
On the other hand, if Gold buyers manage to take out the $2,730 round level, a test of the $2,750 psychological barrier will be inevitable.
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.
