- Gold has bounced from $3,715 lows, favored by cautious markets as geopolitical tensions remain
- Technical indicators in the daily chart suggest the possibility of a deeper bearish correction.
- XAU/USD’s upside attempts are likely to find resistance at the $3,750-3,760 previous support area.
Gold is regaining some of the ground lost on Tuesday. The precious metal has extended its recovery from $3,715 lows, reaching $3,760 area at the moment of writing, where a previous support might have turned into resistance.
Bullion is drawing support from the cautious market mood amid the ongoing geopolitical tensions between Russia and its European neighbors. Denmark has reported coordinated drone attacks that have forced the closure of some of the country’s main airports earlier in the day, and all signs point to Russia.
Technical Analysis: Gold’s upside momentum seems frail
The pair bounced up from lows, but technical indicators are mixed. The 4-hour RSI is still above the 50 level, but the daily chart suggests that the correction from all-time highs, at $3,770, might be deeper. The Daily RSI shows a bearish divergence, suggesting that the rally from mid-August highs has lost steam, and the MACD hints at an imminent bearish cross.
Bulls are likely to be challenged at the previous support area above $3,750, where the pair was contained on September 23. Above here, the September 23 high, at $3,790, and the psychological level at $3,800 would come into target.
To the downside, immediate support is at Wednesday´s low of $3,715, ahead of the previous all-time high, in the area of $3,700. Further down, the 61.8% Fibonacci retracement of last week’s rally, at $3,690, is a common target for corrective reactions.
(This story was corrected on September 25 at 09:50 GMT to say that Gold might find resistance at $3,760, and not at $3.760 as previously reported.)
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.