Gold (XAU/USD) treads water on Thursday as a modest recovery in the US dollar (USD) weighs on the precious metal. At the time of writing, XAU/USD is trading around $4,155, hovering near two-week highs reached on Wednesday, with prices up over 2% so far this week.
The broader narrative remains supportive of bullion as several key Federal Reserve (Fed) officials have recently signaled openness to short-term easing, reinforcing market expectations that the central bank could deliver another rate cut at its 9-10 meeting. December.
Expectations of another rate cut by the Fed have also helped global equities recover from the recent AI ratings-led pullback, improving overall risk appetite. The resulting risk-on tone acts as a headwind for gold, and with US markets closed Thursday for Thanksgiving, liquidity is expected to remain thin, leaving the metal largely range-bound.
Market moves: Dollar finds support as 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 99.60, recovering modestly after falling to a more than 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 Producer Price Index (PPI) and a rise in the unemployment rate.
- Even with the mixed economic signals, traders remain confident the Fed will ease in December, with markets pricing in about 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 in response to Tokyo’s suggestion that it could help defend Taiwan if China attacks. Investors are also monitoring developments around peace talks between Russia and Ukraine after President Volodymyr Zelenskiy signaled readiness to promote a US-backed framework to end the war. Against this background, safe haven demand remains broadly supportive of 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 favor of buyers.
The price remains comfortably above both moving averages, while the Relative Strength Index (RSI) of 59.59 remains well above the mid-50 region, reinforcing the positive momentum. The average directional index (ADX) of 19.12 still points to muted trend strength.
XAU/USD is currently pushing towards the upper limit 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, if you fail to clear $4,200, Gold may extend its consolidation within the triangle pattern.
On the downside, $4,150 serves 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.
Frequently asked questions about gold
Gold has played a key role in human history, as it has been widely used as a store of value and medium of exchange. Currently, apart from its luster and use for jewellery, the precious metal is widely seen as a safe haven, meaning it is considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and against falling currencies, as it is not dependent on any specific issuer or government.
Central banks are the biggest gold owners. 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 currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks from emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US dollar and US Treasuries, both of which are major reserve and safe-haven assets. When the dollar depreciates, gold tends to rise, allowing investors and central banks to diversify their assets during turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of gold, while a sell-off in riskier markets tends 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 cause the price of gold to escalate due to its safe haven status. As a non-yielding asset, gold tends to rise with lower interest rates, while higher money costs usually weigh 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 under control, while a weaker dollar is likely to push up gold prices.