Gold Price Forecast: XAU/USD hits lows sub-$4,600 as US inflation supports the Greenback
- Gold gives away previous gains on Thursday and retreats below $4,600.
- Sticky PCE Price Index figures have provided some support to the US Dollar.
- XAU/USD remains bullish while above the 200-day SMA.
Gold (XAU/USD) is giving away the mild recovery seen during Thursday’s Asian session and pulls back below $4,600 during the European morning, as the US Dollar Index (DXY) consolidates above 99.00. A cautious market sentiment ahead of the Jackson Hole symposium and the hot US inflation figures seen on Wednesday have provided some support to the US Dollar and are keeping precious metals’ rallies limited.
US data released on Wednesday revealed that the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve's (Fed) inflation gauge of choice, remained steady well above the 2% target, adding pressure on the central bank to tighten its monetary policy. Bets for a September rate hike, however, remained practically unchanged, at 36%, according to figures released by the CME Group’s FedWatch Tool.
Technical Analysis: XAU/USD remains bullish while above the 200-day SMA
XAU/USD trades at $4,595, after rejection at the $4.700 area earlier in the week, although the near-term bias remains bullish while above the 200-day Simple Moving Average (SMA). Momentum indicators in the daily chart are well within positive territory, with the Relative Strength Index (14) down to 66, after reaching overbought levels, and the Moving Average Convergence Divergence (MACD) indicator retreating but still above zero, hinting at a moderating bullish momentum rather than a bearish reversal.
Immediate support emerges at Wednesday's low of $4,583, ahead of the aforementioned 200-day SMA, a very popular indicator for FX traders, which now lies at $4,525. A confirmation below here would give fresh hopes for bears, and would expose the August 20 low near $4,450 and the August 14 low, near $4,310.
On the upside, resistance is at Tuesday's high near the $4,700 level and the May 12 high, near $4,775.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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.