Gold Price Forecast: XAU/USD defends key $2,016 support, but for how long?
- Gold price is holding gains above $2,020 amid mixed markets early Tuesday.
- The US Dollar and the US Treasury bond yields see subdued price action.
- Gold price needs to hold the 21-day SMA support at $2,016 to sustain the recovery.
Gold price is clinging to previous gains above $2,020 in the Asian trading hours on Tuesday, as risk sentiment remains in a weaker spot amid lingering Middle East geopolitical tensions and ahead of key inflation data from the United States (US) later this week.
Gold price eyes US housing data and Fedspeak
The Bank of Japan (BoJ) made no changes to its ultra-loose policy settings, as well as, the forward guidance on monetary policy after it concluded its two-day policy review meeting on Tuesday. The USD/JPY pair rallied hard, as the Japanese Yen succumbed to the dovish policy announcement. However, the USD/JPY upsurge is having a limited impact on the US Dollar so far.
Hence, Gold price keeps its sideways trading momentum intact, with the focus shifting toward the US Housing data and any speeches from the US Federal Reserve (Fed) policymakers later in the day. In the meantime, the subdued price action seen in the US Dollar and the US Treasury bond yields could keep the bright metal supported.
Gold price also seeks support from the ongoing geopolitical tensions in the Middle East. Yemen's Iran-backed Houthi rebels launched a series of drone and ballistic missile attacks on ships in the southern Red Sea, which are a response to Israel's assault on the Gaza Strip. Meanwhile, Israelis continued to strike the Gaza Strip overnight, leading to more Palestinian casualties.
However, further upside in Gold price appears elusive, as the Fed policymakers continue to push back against market expectations of aggressive rate cuts next year. Cleveland Fed President Loretta Mester told the Financial Times on Monday that markets are a 'bit ahead' of the Fed on rate cuts.
Chicago Fed President Austan Goolsbee spoke about the market’s reaction to last week’s policy announcements on CNBC’s “Squawk Box.” Goolsbee said, “I was confused a bit — was the market just imputing, here’s what we want them to be saying?”
Gold price technical analysis: Daily chart
Technically, nothing seems to have changed for the Gold price, as the path of least resistance still appears to the upside.
The 14-day Relative Strength Index (RSI) indicator continues to trade above the midline while Gold price defends the 21-day Simple Moving Average (SMA) at $2,016.
A daily closing below the latter is needed to snap the recovery mode, turning south toward the $2,000 threshold. The next downside cap is envisioned at the 50-day SMA at $1,986.
On the flip side, acceptance above the $2,040-$2,050 region is critical for the Gold price to regain its upside traction toward the $2,100 psychological level. Further up, Gold buyers would look to take out the all-time highs of $2,144.
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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Author
Dhwani Mehta
FXStreet
Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.
