Gold Price Forecast: XAU/USD hesitates at $4,600 with Fed easing hopes fading

Guillermo Alcala FXStreet

Gold treads water around $4.600 after failure to break record highs, at $4,640

Strong US employment and manufacturing data boost expectations of a Fed pause.

XAU/USD is forming a potential H&S pattern with its neckline at $4,570.

Gold’s (XAU/USD) is looking for direction at the $4,600 area on Friday. The precious metal failed to breach all-time highs at $4,640, weighed by a stronger US Dollar on Thursday, but downside attempts remain contained above the $4,570 area so far.

Macroeconomic data from the US released on Thursday showed an unexpected decline in weekly Jobless Claims. These figures, coupled with the solid improvements in manufacturing conditions in the New York Empire State and the Philadelphia Fed manufacturing Indexes, have provided further reasons for the US Federal Reserve (Fed) to keep interest rates on hold for some time.

Technical analysis: A bearish Head & Shoulder in progress

The XAU/USD pair trades at $4,606, practically flat on the daily chart. The broader trend remains bullish with the ascending 100-period Simple Moving Average (SMA) providing dynamic support near $4,480, yet with mounting signs that the rally is losing strength.

Recent price action shows a small Head & Shoulders pattern, a common figure for trend shifts. Beyond that, the Relative Strength Index (RSI), approaching the 50 line, suggests a bearish divergence. The Moving Average Convergence Divergence (MACD) line remains below the Signal line, although the histogram has begun to contract, highlighting a fading bearish momentum.

Bears, however, will need to clear out the mentioned $4,570 area (January 13, 14 lows) to confirm a deeper correction. Further down, the targetis the confluence of the are the January 6 high, and the mentioned 100 SMA right below $4,500. To the upside, above $4,640, the next targets would be at the 127.2% and the 161.8% Fibonacci extensions of the January 8-12 rally, at $4,689 and $4,763, respectively.

(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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