Gold Price Forecast: XAU/USD languishes below $4,500 amid US Dollar strength
- XAU/USD remains depressed at nearly seven-week lows around $4,480.
- Geopolitical uncertainty and higher US Yields have sent Gold tumbling during the last week.
- Gold bulls would need to break above $4,500 to ease bearish pressure.
Gold (XAU/USD) consolidates losses at nearly seven-week lows below $4,500 on Wednesday, trading at $4,478 at the time of writing, as the US Dollar Index (DXY) tests six-week highs at the 99.45 area. Safe-haven flows on concerns about further escalation of the US-Iran conflict and rising bets of Federal Reserve (Fed) rate hikes are boosting the US Dollar and hammering Gold.
Hopes of a negotiated end to the war are fading as the US and Iran exchange threats, while in the US, the focus will be on the minutes of April’s Federal Reserve (Fed) meeting, which is expected to show a hawkish tweak.
The Fed left rates unchanged last month, but three policymakers called for removing the “easing bias” line from the bank’s statement. Markets have ramped up expectations of a rate hike in the next 12 months, ever since, which has propelled US Treasury yields and weighed on the yieldless Gold.
Technical Analysis: There is further room for Gold decline
XAU/USD maintains a bearish near-term tone after losing more than 2.5% from Monday's highs. The Relative Strength Index (RSI) is holding near oversold territory on the 4-hour chart, which hints at some consolidation, while the Moving Average Convergence Divergence (MACD) histogram stays in negative territory, suggesting that upside attempts are likely to find sellers.
The pair has found some support at the $4,450 area on Wednesday, with the next bearish targets at the March 30 low, near $4,420, and the March 26 low, near $4,350.
On the upside, bulls would need to breach the previous support area in the $4,480-$4,500 area area (May 4, 15, and 18 lows) to ease negative pressure and shift the focus towards the mentioned Monday's high, at the $4,590 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.