Gold Price Forecast: XAU/USD risks profit-taking after this week’s record rally
- Gold price takes a breather on Friday as traders brace for profit-taking.
- The US Dollar licks wounds with US Treasury yields on cautious optimism and dovish Fed bets.
- Gold price could retreat to the daily support line at $2,892 amid overbought RSI.
Gold price is taking a breather while holding near $2,930 early Friday, having witnessed two straight days of impressive gains.
Gold price consolidates weekly gains
Despite the pause, Gold price remains on track to book its seventh straight weekly gain, mainly supported by US President Donald Trump’s reciprocal tariffs updates and increased expectations that the US Federal Reserve (Fed) could stick with its easing trajectory this year.
Following a hot January US Consumer Price Index (CPI) data, the Producer Price Index (PPI) also surprised markets to the upside. However, the index's components cooled down, reinforcing dovish expectations around the Fed’s rate cut prospects.
Reuters reported, “Following the PPI data, US rate futures priced in 31 basis points (bps) of easing this year, compared with 27 bps late on Wednesday, according to LSEG calculations. The next rate reduction is expected either at the October or December meeting.”
This led to a sharp sell-off in the US Treasury bond yields and the US Dollar (USD), benefiting the non-yielding Gold price.
Additionally, the narrative that the plan for Trump’s reciprocal tariffs is in the works and would not be imposed immediately relieved global stocks and weighed heavily on the haven demand for the USD across the board, pushing Gold price northward.
Gold traders shrugged off prospects of Russia-Ukraine peace talks as the focus remained on Trump’s tariffs and the US inflation data.
On Thursday, the Kremlin came out with a statement that “there is a political will on both sides to engage in dialogue and search for a settlement when asked about a possible Russia-Ukraine peace deal.
Looking ahead, Gold price could see a profit-taking decline as traders cash in their Gold longs after this week’s record rally and heading into a long weekend. Fresh developments surrounding Trump’s tariffs and the broader market sentiment will continue playing a pivotal role in the Gold price direction.
The high-impact US Retail Sales data will be also closely followed for fresh cues on the Fed’s policy outlook and the value of the USD, eventually impacting Gold price.
Gold price technical analysis: Daily chart
The daily chart shows that Gold price could pull back briefly toward the rising trendline support at $2,892.
The 14-day Relative Strength Index (RSI) has turned flat while holding within the overbought territory, suggesting a fresh dip could be in the offing.
If the selling pressure intensifies below the abovementioned support level, the Gold price could accelerate the downside toward the $2,850 psychological barrier.
Conversely, if the upside momentum regains traction, Gold buyers will challenge the record high of $2,943.
The next relevant resistance is seen at the $3,000 round level.
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.
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.
