Gold Price Forecast: XAU/USD at fresh record highs, aims for $3,730 and $3,760
- Gold hits fresh record highs above $3,720 on cautious markets amid geopolitical tensions.
- The next potential targets are $3,730 and $3,760.
- The technical picture shows overbought conditions, daily RSI suggest incipient bearish divergence.
Gold bounced up from the $3,630 area on Friday and is extending gains on Monday, supported by a cautious market mood and hopes of further Fed easing. The precious metal is trading at $3,720, with the following potential targets at $3,730 and $3,760.
The fundamental backdrop remains supportive. European markets have opened on a moderately negative note, as tensions remain high between Russia and its European partners, while in the Middle East, Israel’s occupation of Gaza is generating an increasing wave of opposition among Western countries.
Technical Analysis: Gold is strongly bullish but looks overextended
The technical picture, on the other hand, is sending warning messages. The daily chart shows the pair at overbought levels, after having rallied more than 12% in one month. RSI is starting to suggest some bearish divergence, and the MACD shows an impending bearish cross, which should warn buyers.
On the upside, immediate resistance is the <27.2% Fibonacci retracement of last week’s pullback, at $3,730, ahead of the 161.8% retracement of the same cycle, at $3,760. Beyond here, the $3,800 round level emerges as a potential target.
To the downside, the previous all-time high, at $3,707, might provide support ahead of the $3,615-3,630 area (September 11, 18 lows). Further down, the September 3 high and September 8 low, at $3,580, would come into focus.
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
Guillermo Alcala
FXStreet
Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.
