Gold Price Forecast: XAU/USD eyes $2,310 support, as rising wedge remains in play
- Gold price flirts with two-week lows below 2,320 early Friday.
- The US Dollar and US Treasury bond yields consolidate weekly gains amid a dour mood.
- Gold price confirms rising wedge breakdown, as RSI flips bearish.
Gold price is nursing losses while flirting with two-week lows near $2,327 in the Asian session on Friday. Gold price extends its losing streak into the fourth straight day, remaining on track to book the first weekly loss in three weeks.
US PMI data and Fed Minutes spell doom for Gold price
Following the downtrend induced by the hawkish Minutes of the US Federal Reserve’s May policy meeting, Gold price witnessed another down day, courtesy of stronger-than-expected business PMI data from the United States (US)
Data on Thursday showed that the preliminary US Composite PMI, which tracks the manufacturing and services sectors, jumped to 54.4 this month, registering the highest level since April 2022 and following a final reading of 51.3 in April.
Robust US data combined with the recent hawkish Fedspeak continued to temper aggressive Fed rate cut bets this year, exerting additional downward pressure on the non-interest-bearing Gold price.
The Fed Minutes released on Wednesday showed that “various participants mentioned a willingness to tighten policy further should risks to inflation materialize in a way that such an action became appropriate.”
The Minutes also suggested that the Fed officials grew more concerned about the stubbornness of inflation, citing that “the recent monthly data had showed significant increases in components of both goods and services price inflation.”
According to CME Group’s FedWatch Tool, bets that the Fed will cut rates more than once in 2024 reduced significantly.
Further, dampening Fed rate cut expectations weighed negatively on global stocks, infusing safe-haven flows in the US Dollar at the expense of Gold price.
Gold price also bore the brunt from the supply side after Reuters cited a source familiar with the matter, noting that Russian metals giant Nornickel plans a joint project to construct a platinum group metals (PGMs) refinery in Bahrain.
Looking ahead, Gold price appears vulnerable, as the US Dollar has entered a bullish consolidation phase along with the US Treasury bond yields heading into Fed Governor Christopher Waller’s speech, mid-tier US Durable Goods and Consumer Sentiment data.
Risk-aversion has extended into Asian trading on Friday while Gold price licks its wounds, awaiting fresh catalysts for the next push lower.
Gold price technical analysis: Daily chart
Gold price closed Thursday below the lower boundary of a five-week long rising wedge, then at $2,384, validing a downside break of the wedge formation.
In doing so, Gold price also yielded a close below the key 21-day Simple Moving Average (SMA) at $2,347 while the 14-day Relative Strength Index (RSI) pierced the midline for the downside.
These technical moves suggest that the tide seems to have changed in favor of Gold sellers, with a test of the immediate support of 50-day SMA at $2,309 inevitable.
Failure to resist above the latter could expose the May low at $2,277. Further south, the $2,250 psychological level could act as a tough nut to crack for Gold buyers.
If Gold buyers manage to defend the 50-day SMA support at $2,309, a rebound toward the 21-day SMA support-turned-resistance at $2,347 will be in the offing.
Recapturing that level is critical to unleashing the additional recovery toward the previous day’s high of $2,384. Further up, the $2,400 threshold will be challlenged.
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.