Gold Price Forecast: XAU/USD pulls back before the next leg north
- Gold price retreats from over one-month highs above $3,400 on Tuesday.
- The US Dollar consolidates the downside amid tariff uncertainty and Fed concerns.
- Gold price settles Monday above the key Fibo resistance; any downside appears limited.
Gold price is reversing from over one-month highs of $3,403 reached in early Asia on Tuesday as buyers take a breather, awaiting clarity on potential US trade deals before the August 1 deadline.
Gold price is down but not out
The latest retracement in Gold price could be attributed to a bout of profit-taking after Monday’s nearly 1.5% rally and ahead of key earnings results from America’s tech giant – Alphabet Inc, this Wednesday.
A pause in the US Dollar (USD) and US Treasury bond yields sell-off also weighs on the Greenback-priced bright metal.
The fate of Gold price hinges on the USD’s performance, in the face of US President Donald Trump’s tariff talks.
Mounting uncertainty over US trade deals with Japan and the European Union (EU) weighed heavily on the Greenback at the start of the week on Monday, as it revived US economic growth concerns.
Citing some sources. the Wall Street Journal (WSJ) reported on Monday that “US officials have informed the EU’s trade chief that President Trump is likely to demand further concessions in ongoing trade talks, including a higher baseline tariff of 15% or more on most European goods, a significant increase from the previously discussed 10%.”
EU diplomats noted that the bloc is exploring a broader set of possible countermeasures against the US as doubts over a likely deal rise.
Meanwhile, Japanese political instability cast clouds on a likely US-Japan trade deal before the August 1 deadline.
Additionally, the US currency also felt the heat of the falling US Treasury bond yields amid persistent worries over the Federal Reserve’s (Fed) independence amid Trump’s repeated calls for Fed Chair Jerome Powell’s resignation.
The record rally on Wall Street indices also diminished the safe-haven appeal of the USD and the attractiveness of the yields, helping Gold price extend Friday’s gains.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price closed Monday above the 23.6% Fibonacci Retracement (Fibo) level of the April record rally at $3,377.
Meanwhile, the yellow metal holds its position well above all major Simple Moving Averages (SMA) as the 14-day Relative Strength Index (RSI) stays comfortably above the midline, despite the latest downtick.
The technical setup, therefore, appears in favor of Gold buyers, with acceptance above the $3,400 mark needed to take on the static resistance at around $3,440.
Conversely, if the correction extends, Gold price could test the previous resistance-turned-support at $3,377, below which the $3,330 area could lend some support. That zone is the confluence of the 21-day SMA and the 50-day SMA.
Sellers must find a strong foothold below that demand area to test the 38.2% Fibo level of the same rally at $3,297 before targeting the July low of $3,283.
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.
