Gold Price Forecast: XAU/USD rebounds but not out of the woods yet
- Gold price turns positive early Thursday, snapping a six-day losing streak.
- US Dollar corrects with Treasury bond yields amid mixed Fedspeak, ahead of Retail Sales data.
- Gold price remains ‘sell the bounce’ trade as technicals favor sellers.
Gold price is building on Wednesday’s rebound from two-month lows of $1,984 early Thursday, as the US Dollar (USD) resumes correction alongside the US Treasury bond yields.
Gold price could find fresh support from weak US Retail Sales data
The market mood remains mixed so far this Thursday’s trading, as investors assess the conflicting messages from US Federal Reserve (Fed) policymakers and its implications on the pricing of the dovish policy pivot this year.
The uncertainty around the timing of Fed interest rate cuts, following strong US Nonfarm Payrolls (NFP) and Consumer Price Index (CPI) data for January, keeps the corrective mode intact in the US Dollar, as well as, the US Treasury bond yields.
Fed Vice Chair for Supervision Michael Barr said on Wednesday, the Fed remained confident, but the January CPI numbers show the United States' path back to 2% inflation "may be a bumpy one."
Barr said that he fully supported what he called a careful approach to considering policy normalization given current conditions.
Meanwhile, investors also remain unnerved amid fresh worries concerning the Japanese economic outlook, after Japan unexpectedly slipped into recession after reporting two consecutive quarters of negative growth.
Recession fears could likely support the traditional safe-haven Gold price. Further, expectations of a drop of 0.1% in the US Retail Sales for January also help the Gold price recover some ground. Disappointing US Retail Sales data could suggest weakening consumer demand and revive the Fed rate cut expectations.
Markets are currently pricing in a no-Fed rate cut in March and a lower than 50% chance of easing in May. The odds of a Fed pivot pivot are now seen for the June meeting.
Apart from the US Retail Sales data release, the focus will also remain on the Jobless Claims and speeches from Fed officials for fresh cues on the Fed rate cut expectations, eventually impacting the US Dollar-denominated Gold price.
Gold price technical analysis: Daily chart
As observed on the daily chart, Gold price closed Wednesday below the 100-day Simple Moving Average (SMA) at $1,993, opening the floor for further downside.
The 14-day Relative Strength Index (RSI) is attempting a recovery but remains well below the midline, suggesting that any rebound in Gold price could likely be temporary.
Meanwhile, the 21-day and 50-day SMAs Bear Cross, confirmed last week, also remains in play, supporting Gold sellers.
Against these bearish technical indicators, any corrective upside in Gold price is expected to be a ‘sell the bounce’ trade’ in the near term.
Key support levels are now seen at the December 13 low of $1,973 and the horizontal 200-day SMA at $1,966. A sustained move below the latter will put the $1,950 psychological level at risk.
On the contrary, if Gold price manages to recapture the 100-day SMA support-turned-resistance at $1,993 on a daily closing basis, a fresh recovery toward the 21-day SMA of $2,024 cannot be ruled out.
Ahead of that, Gold price needs to find a strong foothold above the $2,000 barrier.
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.
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.
