Gold Price Forecast: XAU/USD keeps looking for direction above $4,500
- Gold hovers above $4,500, halfway through the weekly trading range.
- Investors await more clarity from the US-Iran peace negotiations.
- XAU/USD is forming a small triangle pattern with a bearish outcome favoured.
Gold (XAU/USD) trades lower for the second consecutive day on Friday, but remains contained within previous ranges, with downside attempts limited above the $4,500 line for now. Market volatility remains subdued on Friday, with traders awaiting developments from the US-Iran war to make investment decisions.
The confusing situation in the Middle East is providing moderate support to the safe-haven US Dollar, keeping the US Dollar Index (DXY) steady near six-week highs and Gold bulls in check.
The latest news reports that Tehran is reviewing a peace proposal submitted by the US, with both parties far apart on Iran’s nuclear activities and control of the Strait of Hormuz. US Secretary of State Marco Rubio, however, said on Thursday that there was “some progress” in the talks with Tehran, which is feeding a moderate optimism
Technical Analysis: Gold is nearing the tip of a triangle pattern
XAU/USD trades at $4,522, holding a capped tone, with price action nearing the tip of a small triangle pattern. The Relative Strength Index (RSI) hovers around 45, hinting at consolidative, yet slightly negative momentum, while the Moving Average Convergence Divergence (MACD) stays in positive territory but has started to ease, suggesting that recent upside attempts are losing traction
Triangles are considered continuation patterns; thus, in this case, a bearish outcome is favoured. The base of the triangle is now at $4,500, but the key support area is the May 20 low near $4,450. A break of this level exposes late March lows at $4,350 and $4,306.
A confirmation above $4,580 (May 18 highs), on the other hand, would negate the bearish view and shift to the May 11 and 12 lows around the $4,650 ahead of May's top in the $4,770 area.
(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.