Gold Weekly Forecast: A key week with PMIs, US PCE in the limelight
- Gold clinched its second consecutive week of gains, hitting record highs.
- Further upside impulse could spark bets on a test of $5,000 at any time soon.
- Fed rate cut bets and geopolitical tensions continued to support the precious metal.
Gold (XAU/USD) extended its positive performance this week, at some point hitting all-time tops just above the $4,640 mark per troy ounce. Since then, the yellow metal seems to have entered a corrective mood, attempting at the same time some consolidation in the upper end of the range.
The rally in the precious metal remained propped up by, firstly, rising expectations of extra interest rate reductions by the Federal Reserve (Fed) in the upcoming months, and secondly, incessant geopolitical concerns stemming mainly from the Middle East (Iran, Israel, and the US), while the Russia-Ukraine conflict also adds to the matter.
In addition, the metal’s strong performance since the beginning of the year appears to have ignored the persistent recovery of the US Dollar (USD), although the range-bound theme in US 10-year Treasury yields kind of reinforced the marked uptick.
Next on tap… $5,000?
It is worth recalling that the current impressive rally has seen the yellow metal retreat only in five months since 2024, following nearly four years of a consolidative phase.
Favouring bullion’s positive prospects, investors continue to bet on further rate cuts by the Fed in the upcoming months, a view reinforced by the latest US inflation figures, which showed the Consumer Price Index (CPI) cooling further in December despite still navigating above the central bank’s 2% target.
The omnipresent geopolitical factor also plays a key role in the marked uptrend. Indeed, adding to the Russia-Ukraine conflict, flared-up concerns have re-emerged in the Middle East after massive protests in Iran correlated with a brutal response from the domestic military (and non-military) forces, which, at the same time, sparked another bout of potential US military intervention.
While the US-Venezuela crisis in early January pertains almost exclusively to the crude oil realm, it also adds to the deterioration of the geopolitical map across the planet.
What about politics?
The latest pullback in the US Dollar followed reports that the Justice Department could seek to indict Fed Chair Jerome Powell over comments he made to Congress about cost overruns linked to a renovation project at the Fed headquarters.
Powell described the move as a pretext to gain leverage over interest-rate decisions, something US President Donald Trump has openly pushed for, and the episode has reignited concerns over the Fed’s independence, weighing on confidence in the Greenback.
A more dovish Fed chair does not necessarily imply that the Committee will be automatically inclined to cut interest rates. That said, it could tilt market perceptions towards the prospect of lower rates further down the line, which in turn would likely weigh on the US Dollar and support sentiment around the non-yielding metal.
Gold technical outlook
The continuation of the rally could prompt Gold to challenge its all-time high at $4,643 (January 14), prior to the Fibonacci extension of the May 2025-October 2025 uptrend at $4,723.
On the downside, immediate support emerges at the weekly trough at $4,274 (December 31), an area reinforced by the provisional 55-day SMA at $4,259. Down from here sits the December floor at $4,163 (December 2), ahead of the transitory 100-day SMA at $4,071.
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Speaking about momentum, the Relative Strength Index (RSI) eases toward the 64 region, although it still suggests further upside remains on the cards. In addition, the Average Directional Index (ADX) near 30 is indicative of a strong trend.
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
Pablo Piovano
FXStreet
Born and bred in Argentina, Pablo has been carrying on with his passion for FX markets and trading since his first college years.
