Gold Price Forecast: XAU/USD rejected at $3,400, is testing support at $3,380
Gold is retreating from two-week highs at $3,400 amid a firmer US Dollar.
Speculation of Waller as the next Fed Chair has provided some support to the US Dollar,
Below $3,380, Gold is lilkely to extend its correction to $3.350.
Gold (XAU/USD) bulls have failed to breach the psychological resistance area around the $3,400 level on Friday and are showing an impulsive reversal, weighed by the broader US Dollar strength, that has pushed the precious metal towards the support area above $3,380.
A stronger US Dollar is weighing on precious metals on Friday. News reports suggesting that Governour Waller emerges as a top candidate to replace Powell at the Fed’s head have soothed investors, wary about the credibility of the central bank, and have provided some support for the US Dollar.
The rebound on the US Dollar, however, is likely to be limited, as, after all, Trump’s nominees are expected to pursue his lower rates agenda, especially if US data continues showing evidence of a softening economic momentum. The higher-than-expected jobless claims figures and the moderate unit labour costs seen on Thursday keep hopes of a September rate cut alive, which is likely to add weight to the US Dollar recovery
Technical analysis: XAU/USD is at the bottom of an ascending wedge, at $3,380
The 4-hour chart shows the pair testing the bottom of an ending wedge, a figure often anticipating trend shifts. The bearish divergence on the Relative Strength Index (RSI) supports that idea.
A confirmation below $3,380, where the trendline support crosses the intra-day low, would increase pressure towards the August 6 low at $3.360. The wedge´s measured target is the August 5 low, at $3,350.
On the upside, the pair has been rejected in the vicinity of the 78.6% Fibonacci retracement of the late July sell-off, right above $3,400. Above here, the following upside targets are the 22 July high, at $3,440, and June’s peak, at $3,450.
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.
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