Gold Price Forecast: XAU/USD heads for the $4,000 level as US Dollar marches higher

Gold dips below $4,100 as the US Dollar Index hits fresh 13-month highs near 102.00.
Precious metals remain under pressure as investors brace for Fed rate hikes later this year.
XAU/USD bears are likely to test the $4,000 psychological level.

Guillermo Alcala FXStreet

Gold (XAU/USD) extends losses for the second consecutive day on Wednesday as the US Dollar Index (DXY) surges to 13-month highs near 102.00. The precious metal has breached the 4,100 line and is heading to retest Year-to-date lows, at $4,023, and probably also the $4,000 psychological level.

Precious metals remain under strong bearish pressure as investors brace for Federal Reserve (Fed) interest rate hikes in the second half of the year. US macroeconomic figures and the stubbornly high inflation have prompted Fed policymakers to adopt an unambiguous hawkish rhetoric over the last few weeks, sending US yields and the US Dollar higher.

Beyond that, stock markets across the globe have seen significant losses amid a sharp sell-off of tech shares, leaving investors wondering whether the AI bubble is finally bursting. Concerns about the impact of a potential AI burst in a global economy still in shock from the Middle East conflict are providing additional support to the safe-haven USD.

Technical Analysis: Bears eye the $4,000 psychological area

XAU/USD trades at $4,061, extending a bearish phase with momentum indicators suggesting scope for further depreciation. The 4-hour Relative Strength Index (14) is close, but not yet at oversold levels, and the Moving Average Convergence Divergence (MACD) is in negative territory, altogether hinting at persisting downside pressure.

Bears remain contained above the 127.2% Fibonacci extension of last week's decline, at 4,055, but the shallow upside attempts suggest that the YTD low, at $4,233, is likely to be retested. Below here, the $4,000 level might pose some support ahead of the 161.8% Fibonacci extension of the mentioned cycle, at $3,964.

On the topside, any corrective bounce is likely to struggle at Tuesday's highs near $4,145 and Monday's peak, around $4,220, ahead of the descending trendline from early March highs, now around $4,355.

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

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

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.

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