Gold Price Forecast: XAU/SD retreats to the $4,445 area in thin trading
- Gold retreats from record highs at $4,550 and tests support at $4,445 area.
- A stronger US Dollar and hopes of a peace deal in Ukraine are weighing on precious metals.
- Technically, Gold is correcting lower after reaching overbought levels.
Gold (XAU/USD) has dropped about $80 from the all-time highs at $4,550 area hit last week to session lows at $4,445 on Monday, weighed by hopes of a peace deal in Ukraine and a moderate recovery of the US Dollar, amid thin year-end trading.
Precious metals retreated sharply on Monday, after US President Trump showed his conviction that the end of the war in Ukraine is “a lot closer,” although he acknowledged that controversial issues, such as the fate of the Donbas region, remain unresolved.
Technical Analysis: Gold corrects lower after reaching overbought levels
In the 4-hour chart, XAU/USD trades at $4,472.78. Price action remains contained within December's ascending channel, but technical indicators have turned lower. The Moving Average Convergence Divergence (MACD) remains below zero and extends its slide, suggesting strengthening bearish momentum. The Relative Strength Index (RSI) sits at neutral levels, at 49.89, down from heavily overbought figures, above 80.00 last week.
The pair has found support at the $4,430 - $4,445 area, which held bears on December 23 and 24, ahead of the bottom of the previously mentioned channel, now at $4,415. Further down, the mid-December highs, in the area of $4,350, will come into focus.
On the upside, immediate resistance area is at the December 26 high of $4,550, and the channel top, near $4,580. If these levels are breached, the 127.2% Fibonacci extension of the December 19 - 26 rally lies at $4,616.
(The technical analysis of this story was written with the help of an AI tool)
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.