Gold (XAU/USD) is posting minor losses for the third consecutive day on Thursday, weighed by lower demand for safe havens amid a moderate risk appetite. The precious metal, however, remains supported above the mid-range of the $4,100s with the $4,264 high at a short distance.
The brighter market mood is weighing on Gold this week, but the rising bets that the US Federal Reserve will cut interest rates after its December 10 meeting keep bullion’s downside attempts limited for now. Later on Thursday, the US Initial Jobless Claims report might give some impetus to the US Dollar’s volatility, although investors are likely to stand pat, ahead of Friday’s PCE Prices Index release.
Technical Analysis: A triangle pattern has formed around $4,200
Price action is forming a triangle pattern around the $4,200 level, with technical indicators showing a lack of clear bias. The 4-hour Relative Strength Index is flat around the 50 level, while the Moving Average Convergence Divergence (MACD) remains below zero, revealing a mild bearish momentum
The triangle is considered a continuation pattern, which, in this case, would suggest a bullish outcome. Immediate resistance is at the triangle top, now around $4,230, ahead of Wednesday’s high, at $4,240, and the December 1 high, at the mentioned $4,264.
On the downside, a break of the triangle bottom, now at $4,178, should be confirmed below Wednesday’s low of $4,165. Further down, the target would be the November 27 lows near $4140.
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.