Gold Price Forecast: XAU/USD shouts for a correction at fresh highs past $3,650
- Gold extends its rally to all-time highs above $3,650 amid broad-based USD weakness.
- Investors' fears of a sharp downward revision of US jobs are hurting the Dollar on Tuesday.
- XAU/USD looks overstretched after rallying 10% in the last three weeks.
Gold keeps marching higher on Tuesday and has reached a fresh all-time high above $3,650. The pair, however, looks beyond overstretched after a 10% rally from August 20, with most timeframes heavily overbought, sending a severe warning for buyers.
The precious metal is drawing support from market expectations of a sharp cut in US employment figures at today’s BLS Benchmark Nonfarm Payrolls Revision, due later on the day. Market sources have flagged a slash of 800,000 jobs, which would add pressure on the Fed to cut rates by 50 basis points next week.
Technical Analysis: XAU/USD is at strongly overbought levels
A look at the 4-hour chart and we see all the ingredients for a downwards correction. The Relative Strength Index, near the 80 level and showing a bearish divergence, suggests that the pair might need to come down before rallying further.
To the upside, immediate resistance is at the intraday high of $3,658. Further up, the 265.8% retracement of the September 3-4 reversal, at the $3,690 area, might be a plausible target ahead of the $3,700 round level.
A bearish reversal from these levels is likely to find support at the intra-day low of $3.630 ahead of the September 8 low, at $3580 and the September 4 low, at $3,515.
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.
