Gold (XAU/USD) is treading water on Thursday as a modest rebound in the US Dollar (USD) weighs on the precious metal. At the time of writing, XAU/USD is trading around $4,160, hovering near two-week highs reached on Wednesday, with the metal up nearly 2.20% so far this week.
The broader narrative remains supportive for Bullion as several key Federal Reserve (Fed) officials have recently signalled openness to near-term easing, reinforcing market expectations that the central bank could deliver another rate cut at the December 9-10 meeting.
Expectations of another Fed rate cut have also helped global equities recover from the recent AI-valuation-led pullback, improving overall risk appetite. The resulting risk-on tone is acting as a headwind for Gold, and with US markets closed on Thursday in observance of Thanksgiving, liquidity is expected to remain thin, leaving the metal largely range-bound.
Market movers: Dollar finds support while Fed rate cut expectations remain intact
- The US Dollar Index (DXY), which measures the Greenback’s value against a basket of six major currencies, is trading around 99.65, recovering modestly after slipping to an over one-week low near 99.41 earlier in the day.
- The delayed US economic data released so far painted a mixed picture with stronger-than-expected September Nonfarm Payroll (NFP) and upbeat Durable Goods Orders contrasting with softer Retail Sales, softer core Producer Price Index (PPI) and an uptick in the Unemployment Rate.
- Even with the mixed economic signals, traders remain convinced the Fed will ease in December, with markets pricing in around an 85% probability of a 25-basis-point reduction, according to the CME FedWatch Tool.
- Geopolitical tensions remain in focus with the ongoing China-Taiwan dispute after Beijing issued fresh warnings to Japan, responding to Tokyo’s suggestion that it could help defend Taiwan if China attacks. Investors are also monitoring developments around the Russia-Ukraine peace talks, after President Volodymyr Zelenskiy signalled readiness to advance a US-backed framework to end the war. Against this backdrop, safe-haven demand remains broadly supportive for Gold.
Technical analysis: XAU/USD tests triangle resistance with $4,200 in focus
On the daily chart, Gold maintains a constructive structure, with the 21-day Simple Moving Average (SMA) continuing to hold above the 100-day SMA, keeping the broader bias tilted in favour of buyers.
Price remains comfortably above both moving averages, while the Relative Strength Index (RSI) at 59.59 holds well above the mid-50 region, reinforcing positive momentum. The Average Directional Index (ADX) at 19.12 still points to subdued trend strength.
XAU/USD is currently pressing against the upper boundary of a symmetrical triangle formation, with the next key resistance located near $4,200. A decisive break above this barrier would open the door to further upside. However, failure to clear $4,200 may see Gold extend its consolidation within the triangle pattern.
On the downside, $4,150 acts as initial support, followed by stronger support around $4,050-$4,070, where the rising 21-day SMA converges with the lower boundary of the triangle.
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.