Gold Price Forecast: XAU/USD reversal from $3,400 found support at $3,340
- Gold finds support at $3,340 with upside attempts limited for now.
- The precious metal wavers without a clear bias as investors await US inflation figures.
- XAU/USD has reached the broken wedge target, but technical indicators show scope for further depreciation.
Gold (XAU/USD) reversal from the $3,400 area has been contained at a strong support area between $3,335 and $3,345, where the pair was contained on August 4 and 5, which is also coincident with the 50% Fibonacci retracement of the early August rally.
The pair is trading sideways without a clear bias on Tuesday’s European session, as the US Dollar Index consolidates previous gains with all eyes on the US CPI release, due later today. A more cautious market sentiment on Tuesday is keeping the precious metal from dropping further.
Technical analysis: Gold has reached the wedge’s target
XAU/USD confirmed a trend shift on early Monday’s trading after breaching the bottom of the ending wedge, at $3,390. The pair featured an impulsive reversal to reach the broken wedge’s measured target, at $3,345, and is consolidating on Tuesday, awaiting a fundamental trigger to set the US Dollar’s near-term direction.
Technical indicators remain pointing lower, and a confirmation below the mentioned $3,335 level would bring the July 29 low and July 31 highs, at the $3,305-$3,315 area back to the bears’ focus, before the August 1 low, at $3,282.
To the upside, immediate resistance is at the August 8 lows at $3,380 ahead of the $3,400-$3,410 area, where the August 7 and 10 highs meet the reverse trendline. Above here, the bearish view will be cancelled with the late July highs, at $3,440 coming into view.
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.
