Gold Price Forecast: XAU/USD stays volatile within range, setting off the Fed week
- Gold wobbles around $3,650 early Monday, but stays in the previous week’s trading range.
- US Dollar rebounds on short covering, as a cautious market mood helps.
- US-China trade talks and Fed rate call remain in focus for a fresh directional impetus.
- Gold buyers refuse to give up yet, despite extreme overbought conditions on the daily chart.
Gold is moving back and forth in a familiar range around the $3,650 barrier, kicking off a big central bank week early Monday.
Gold holds ground after weak Chinese data
The latest uptick in Gold appears to be sponsored by the weaker-than-expected China’s activity data for August, which stoked expectations that China will roll out additional stimulus measures to stimulate economic growth.
China’s Industrial Output expanded at 5.2%, slowing from the 5.7% pace of the previous month, while Retail Sales rose only 3.4% from a year ago following a 3.7% growth in July. Both indicators surprised markets to the downside.
Additionally, Gold capitalizes on a lack of progress on day 1 of a fresh round of trade talks between the United States (US) and China in Madrid, Spain, on Sunday.
The talks are centered on the TikTok, trade and economic issues, expected to continue until Wednesday.
Furthermore, markets trade with caution ahead of the critical US Federal Reserve (Fed) policy announcements, keeping any downside cushioned in Gold.
The Fed is widely expected to cut fed fund rates by 25 basis points (bps) as the central bank grapples with a slowing labor market, stubborn inflation and an unprecedented push by US President Donald Trump for lower borrowing costs
Speculations are rife over a 50 bps rate cut, while markets are also betting on three rate cuts this year, beginning this week. Gold tends to benefit in a low-interest rate regime.
Ahead of the Fed verdict, the US-China trade talks and the Retail Sales report would keep Gold traders entertained.
Gold price technical analysis: Daily chart
The daily chart shows that Gold is holding its consolidative mode below record highs as buyers remain cautious with the 14-day Relative Strength Index (RSI) still in the extreme overbought zone near 77.
On the upside, the record high of $3,675 remains in sight, with the next resistance seen at the $3,700 level
Further up, the $3,750 region could challenge the bearish commitments.
Conversely, the immediate support is seen at the $3,600 round figure, below which the previous week’s low of $3,578 could be tested.
A sustained break below the latter will open up a fresh downside toward the $3,550 psychological mark.
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.
