Gold Price Forecast: XAU/USD gains as oil rally eases, upside seems limited amid hawkish Fed bets

Gold price jumps to near $4,320 as rally in oil prices cools down.
The Fed hiked interest rates on Wednesday and a majority signlaed at least one more this year.
Deutsche Bank reports that markets price in another 75bps of Fed hikes by next June.

Sagar Dua FXStreet

Gold price (USD) is up 1.15% to near $4,320 during the European trading session on Thursday. The precious metal gains as rally in oil prices cool down after Saudi Arabia mulls alternatives to ship energy products.

According to a Times of India (ToI) report, Saudi Arabia is offering additional crude cargoes to Asian refiners through ship-to-ship transfers off Oman's Sohar port.

Gold price has been carrying a negative relationship with oil prices as higher energy prices de-anchor inflation expectations, a scenario that prompts fears of interest rate hikes by global central banks.

Meanwhile, the upside in the Gold price appears to be limited as market experts see more interest rate hikes by the Federal Reserve (Fed) in the near term.

On Wednesday, the Fed hiked interest rates by 25 basis points (bps) to 3.75%-4.00%, as expected, and its dot plot signaled that 16 of 18 policymakers see at least one more interest rate hike this year. Fed Chair Kevin Warsh didn’t participate in the dot plot projections.

Money markets fully factor in further Fed tightening

According to strategists at Deutsche Bank, the Fed’s latest move has triggered a notable shift along the front end of the US curve, with “money markets moved to price in more tightening, with another 75bps of Fed hikes now being fully priced by next June (+10.8bps on the day), and with a hike around 50% priced for the upcoming October meeting.”

Gold Technical Analysis

In the daily chart, XAU/USD trades at $4,314.02, holding a bearish near-term bias as it remains below the 20-day exponential moving average (EMA) at $4,364.99. The price action suggests gold is capped by this dynamic resistance, while the Relative Strength Index (RSI) at 46.39 hovers just below neutral, hinting at waning upside momentum rather than outright oversold conditions.

On the topside, immediate resistance is located at the 20-day EMA near $4,365, followed by the September 8 high near $4,443. On the downside, the Gold price could fall to the psychological level of $4,000 if it falls below the Wednesday's low at $4,235.40.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

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

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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