Gold (XAU/USD) keeps trading in a choppy and volatile manner, moving roughly within a $40 range, both sides of the $4,200 line on Tuesday. The long wicks on the daily chart candles highlight the hesitant market as investors await Wednesday’s Federal Reserve decision for further insight about the near-term interest rate path.
Investors have already priced in a 25 basis points rate cut on Wednesday, and the focus now is on the interest rate projections, the so-called “Dot-Plot”, and Chairman Powell’s conference. The market consensus is leaning toward a hawkish message, following the rate cut, which has been pushing US Treasury yields higher over the last few days, providing some support to the US Dollar and weighing on precious metals.
Technical Analysis: Gold is looking for direction around $4,200
Recent price action shows a consolidation pattern around the $4,200 level. Technical indicators show no clear bias. The 4-hour Relative Strength Index is picking up from negative territory, returning to the 50 level, while the Moving Average Convergence Divergence (MACD) remains below zero, revealing a mild bearish momentum.
The yellow metal has a significant support level at the $4,165 area (December 2 low), although bulls are running out of steam ahead of Monday’s highs, at the $4,220 area. This level needs to give way to expose the $4,265 area, where Gold was capped on December 1 and 5.
To the downside, a successful break of $4,165 would confirm a double top at $4,265 and increase pressure to the November 26 and 27 low, at $4,140, ahead of the November 25 low, near $4,110. The target of the Double Top pattern is at the $4,065 area.
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.