Gold Price Forecast: XAU/USD struggles below $4,000 ahead of US sentiment data
- Gold finds fresh demand near $3,960, stalling the retreat from record highs of $4,059 reached Wednesday.
- US Dollar sees a profit-taking pullback amid a tepid risk tone and dovish Fed talks, ahead of sentiment data.
- Gold is moving within the rising channel on the daily chart, with the RSI off extreme overbought conditions.
Gold is looking to build on Thursday’s late rebound as buyers aim for the key $4,000 level once again early Friday, snapping the corrective decline from lifetime highs of $4,059 set on Wednesday.
Gold set for eighth straight weekly gain
Bracing for the eighth consecutive weekly advance, Gold buyers look to resume the record-setting rally in Asian trading on Friday.
Markets remain risk-averse as the US government shutdown is seen stretching into the next week as the Senate wound up for a long weekend holiday, not back until Tuesday.
Further, declining Asian stocks and a pause in the US Dollar (USD) upsurge also lend support to the bullion as traders digest the latest dovish commentary from Federal Reserve (Fed) policymakers.
New York (NY) Fed President John Williams told the NY Times on Thursday that he supports further interest rate cuts this year, per Reuters.
Meanwhile, San Francisco Fed President Mary Daly noted early Friday that “the Fed is projecting additional cuts, but in risk management.”
Markets now eagerly await the release of the University of Michigan (UoM) Consumer Sentiment and Inflation Expectations data for fresh policy insights and trading impetus, in the wake of delayed key statistics and Fed Chair Jerome Powell’s no-show on monetary policy.
Investors also take account of the latest report carried by the NY Times, citing that the US Bureau of Labor Statistics (BLS) plans to publish the September Consumer Price Index (CPI) report despite the ongoing government shutdown.
However, the inflation data is unlikely to be released on October 15, originally scheduled.
Gold price technical analysis: Daily chart
The daily chart shows that the 14-day Relative Strength Index (RSI) is off the extreme overbought zone but remains near 75, as of writing.
The leading indicator suggests that buyers could regain full vigour, with a retest of the all-time high of $4,059 likely. A sustained break above that will call for a test of the $4,100 – the upper boundary of the rising channel.
To the downside, Gold needs to crack the lower boundary of the rising channel at $3,962 on a weekly candlestick closing basis to sustain the correction toward the $3,900 round figure.
The October 2 low of $3,819 will be next on sellers’ radars, where the 21-day Simple Moving Average (SMA) approaches.
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.
