Gold Forecast: XAU/USD bounces off key support on renewed Russia-Ukraine geopolitical risks

Gold price rises for the first time in seven days as a new week begins.
Renewed Russia-Ukraine geopolitical woes and a subdued US Dollar aid the Gold price rebound.
Gold price defends key support near $2,550 as the daily RSI tests oversold territory and bounces.

Gold price stages a solid comeback early Monday, testing the $2,600 threshold as buyers return on looming risks of a geopolitical escalation between Russia and Ukraine.

Gold price capitalizes on safe-haven demand

In the latest development that occurred over the weekend, US President Joe Biden authorized Ukraine to use American Army Tactical Missile Systems (ATACMS) to strike inside Russia. The decision to allow the use of long-range US weapons inside Russia came after Moscow deployed North Korean ground troops to supplement its own forces.

Markets remain wary of further escalation in the Russia-Ukraine tensions amid the ongoing conflict between Israel and Iran, spurring safe-haven flows into the bright metal.

Gold price also capitalizes on China’s efforts to ramp up the country's stock market activity. China Securities Regulatory Commission (CSRC) announced that it will expand the scope of stock eligible to trade via the Shanghai-Hong KongStock Connect.

Note that China is the world’s top Gold consumer, and any support measures by the local authorities to boost economic performance seem positive for the precious metal.

Meanwhile, a broad-based US Dollar (USD) upside consolidative phase also aids the Gold price upswing as buyers take a breather heading into the new week.

The USD has rallied hard to reach the highest level in a year against its major rivals last week, courtesy of the Trump trades. US President-elect Donald Trump’s fiscal and trade policies are seen as inflationary and supportive of a higher Greenback.

Attention now remains on the upcoming speech by Chicago Federal Reserve (Fed) President Austan Goolsbee in the absence of top-tier economic releases on Monday. Geopolitical developments will also be closely eyed for any significant impact on the traditional safe-haven asset, Gold.

Gold price technical analysis: Daily chart

The short-term technical outlook for Gold price remains more or less the same, with any recovery attempts likely to be short-lived as long as the 14-day Relative Strength Index (RSI) stays bearish.

However, the latest uptick in the leading indicator justifies the Gold price rebound from the critical support of $2,548, where the 100-day Simple Moving Average (SMA) and the September 18 low merge.

In doing so, Gold price challenges the $2,600 mark. Recapturing the latter on a daily closing basis is critical to unleashing the additional recovery toward the November 13 high of $2,619.

Further up, the $2,650 psychological barrier could check the upswing. The 50-day SMA aligns near that level, making it a strong resistance.

On the flip side, the immediate support is seen at the abovementioned confluence support of $2,548.

A sustained break below the last will initiate a fresh downtrend toward the $2,500 threshold, with the next bearish target seen at the September 4 low of $2,472.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

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