Gold Price Forecast: XAU/USD approaches $4.500 amid US Dollar’s weakness
- Gold pares losses on Thursday and reaches session highs near $4,500.
- A ceasefire in Lebanon has triggered moderate optimism about a durable peace in Iran.
- A daily close above $4,500 would boost hopes of a deeper recovery.
Gold (XAU/USD) trades higher on Thursday and has reached session highs above $4,490, after bouncing from $4,425 lows earlier on the day. The precious metal holds weekly losses, but investors' optimism following news of a ceasefire between Israel and Lebanon has hurt the safe-haven US Dollar, providing a fresh impulse to precious metals
The deal, still pending confirmation from Hezbollah, is expected to overcome one of the main obstacles to a durable peace agreement between the US and Iran. Oil prices and the US Dollar have gone through moderate declines following the agreement, although the ongoing hostilities in the area keep investors on edge
On the macroeconomic front, US data has been Dollar-supportive this week, cushioning USD dips. ADP employment figures showed a larger-than-expected increase in net jobs in May, while the ISM Services Purchasing Managers’ Index highlighted solid business activity in the sector, combined with high inflationary pressures. The data fuel expectations that the Federal Reserve (Fed) will be forced to hike rates later in the year if price pressures remain high.
Technical Analysis: Gold is showing initial signs of a potential bullish correction
XAU/USD has found support at the key 200-day simple moving average (SMA) on Thursday to pare previous losses. A daily close beyond $4,500 would confirm a bullish engulfing candle in the daily chart, a common sign of trend shifts, and give fresh hope for bulls.
Momentum, however, remains soft, with the daily Relative Strength Index (RSI) hovering below the 50 line and the Moving Average Convergence Divergence (MACD) still in negative territory, hinting that upside attempts may struggle to gain strong traction in the near term.
Bulls need to break and remain above Wednesday's top at the mentioned $4,500 to shift the focus towards the top of the recent range, at the $4,590 area (May 19, 29 highs). On the downside, a break below the 200-day SMA at $4,425 would put bears back in control and increase pressure towards the two-month low in the $4,515 area.
(The technical analysis of this story was written with the help of an AI tool.)
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.