Gold Price Forecast: XAU/USD dips below $4,400 as Middle East tensions grow

Gold tests levels below $4,400 as tensions in the Middle East curb investors' appetite for risk.
Higher Oil prices put pressure on inflation, prompting central banks to tighten monetary policy.
A confirmation below $4,300 activates a bearish H&S pattern.

Guillermo Alcala FXStreet

Gold (XAU/USD) posts marginal gains for the third straight day on Tuesday amid risk-off sentiment as tensions in the Middle East escalate and Oil prices rally, strengthening the case for higher interest rates in the world's major economies. Against this background, the XAU/USD pair explores prices below $4,400 during the European trading hours, extending its decline from last week’s highs in the $4,500 area.

Risk appetite faded on Tuesday as Tehran escalated its threats, warning that it might attack energy infrastructure in Gulf countries, including US Oil and Gas sites, in case of new attacks on its assets.

With hopes of a negotiated end to the war vanishing, Oil prices continue rising. Brent Crude stretched to levels above $97.00 per barrel, nearing the feared $100 psychological level, boosting inflationary pressures and prompting central banks to adopt more restrictive policies.

Technical Analysis: Key support is at $4,300.

XAU/USD trades at $4,394 after being capped ahead of the key 200-day simple moving average (SMA) last week, with momentum indicators in the daily chart highlighting incipient bearish traction. The Relative Strength Index (14) is hovering around the 50 level, and the Moving Average Convergence Divergence (MACD) treads within negative territory.

On the downside, Friday's low at the $4,370 area is likely to test bears, but the key support remains between $4,300 and $4,285, the August 14 and September 2 lows respectively, and the neckline of a bearish Head & Shoulders (H&S) pattern.

On the topside, bulls face an important cluster of resistances between last week's highs at $4,510 and the mentioned 200-day SMA just above at $4,536, while a break higher would expose the August 25 high, just below $4,700.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

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.

Author

Guillermo Alcala

FXStreet

Graduated in Communication Sciences at the Universidad del Pais Vasco and Universiteit van Amsterdam, Guillermo has been working as financial news editor and copywriter in diverse Forex-related firms, like FXStreet and Kantox.

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