Gold Price Forecast: XAU/USD’s path of least resistance appears to the upside
- Gold price is consolidating weekly gains above $2,030 early Friday.
- US Dollar licks its wounds alongside the US Treasury bond yields after the dovish Fed pivot.
- Gold price remains exposed to upside risks amid favorable technicals.
Gold price is fluctuating between gains and losses while trading in a tight band above the $2,030 level early Friday, as buyers pause to digest this week’s positive developments heading toward the pre-Christmas lull next week.
Gold price set for weekly gain on Fed pivot
Even so, Gold price is on track to book a weekly advance, snapping the previous week’s sharp pullback from all-time highs of $2,144. The Asian side trend in the Gold price can be attributed to a pause in the US Dollar sell-off, as the US Treasury bond yields attempt a tepid bounce. The US Dollar also finds a floor, as the Asian stocks pare early gains, gearing up for the release of the preliminary PMI data from the US and the Eurozone, which will throw fresh insights into the state of the global economy.
The US Dollar is licking its wounds, inflicted by the US Federal Reserve’s (Fed) dovish pivot, with Chair Jerome Powell affirming 2024 interest rate cut expectations. In contrast, the Bank of England (BoE) and the European Central Bank (ECB) on Thursday left the door ajar for further tightening while reinstating that rates will stay ‘higher for longer’.
The US Dollar suffered heavily on Thursday, as the monetary policy divergence between the Fed, the BoE and the ECB came to the fore. The Greenback found some respite from an unexpected rise in the US Retail Sales data and falling Jobless Claims. But the US Dollar reprieve emerged as temporary, as the dovish Fed outlook-led global risk-on rally smashed it's once again, keeping Gold price elevated near eight-day highs of $2,048.
Looking ahead, the global PMI data will provide fresh trading impetus, as the end-of-the-week flows and profit-taking will likely remain in play, especially after a central banks-dominated volatile week draws to an end.
Gold price technical analysis: Daily chart
Having extended Wednesday’s recovery above the key $2,040-$2,050 supply zone, Gold price failed to find a foothold above the latter on a daily closing basis on Thursday.
With the 14-day Relative Strength Index (RSI) indicator, however, still holding above the midline, the bullish potential appears intact for Gold price so long as it defends the critical short-term 21-day Simple Moving Average (SMA, now at $2,015.
A sustained break below the latter will reopen floors toward a test of the $2,000 threshold, below which the 50-day SMA support at $1,980 will be back in play.
On the flip side, a daily close above the $2,040-$2,050 region is critical to unleashing additional Gold price recovery toward the $2,100 psychological level.
(This story is corrected on December 15 at 06:30 GMT to say that "Gold price is fluctuating between gains and losses while trading in a tight band above the $2,030 level ," not $1,930)
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.
