Gold Price Forecast: XAU/USD bounces towards $4,800, remains bearish on the day
- XAU/USD reaches levels near $4,800 after bouncing from $4,404 lows.
- Kevin Warsh's nomination as the Next Fed Chief triggered a sharp correction in Precious metals.
- Gold's recovery is likely to be challenged at the $4,900 area.
Gold (XAU/USD) is trimming some losses on Monday after the sharp bearish correction witnessed on Friday and Monday’s Asian session. The precious metal has returned to levels near $4,800, trading at $4,766 at the time of writing, but still about 15% below Thursday's highs above $5,600.
US President Donald Trump’s announcement of former Federal Reserve governor Kevin Warsh as the replacement for Jerome Powell triggered a reversal that appears to have caused a short squeeze in precious metals. Reuters reported that CME Group has hiked margin requirements for precious metal trades, which only accelerated Gold and Silver’s sell-off.
Technical Analysis: Bulls are likely to be tested ahead of the $5,000 level
XAU/USD has found some footing during the European morning session to retrace some losses, but the immediate trend remains strongly bearish. The Moving Average Convergence Divergence (MACD) line remains well below the zero line, although it has turned flat, indicating a softer bearish momentum. The Relative Strength Index (RSI) remains below 40 after picking up from oversold levels.
Upside attempts are likely to meet resistance at the intraday high, near $4,890, and at the $5,000 psychological level. Further up, the next target is the previous support area at $5,100 (January 29 low).
On the downside, immediate support is at the intra-day low of $4,404; below here, bears might be attracted to the 78.2% Fibonacci retracement of the November-January rally at $4,270.
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.