The price of gold (XAU/USD) rose 0.4% to close to $4,230 during the European trading session on Friday. The yellow metal is trading solidly, but is positioned in a narrow range between $4,164 and $4,265 over the past four trading days.
The outlook for the precious metal remains bullish as the Federal Reserve (US central bank) is widely expected to cut interest rates in its monetary policy announcement on Wednesday. Lower interest rates by the Federal Reserve bode well for non-yielding assets, such as gold.
According to the CME FedWatch tool, the probability that the Fed will cut interest rates by 25 basis points to 3.50%-3.75% at its December policy meeting is 87%. The Fed’s dovish outlook is driven by weak labor market conditions in the United States.
With expectations pointing to a 25 basis point rate cut, investors will pay more attention to monetary policy guidance for 2026. Fed officials are expected to adopt a restrictive monetary policy outlook as inflation remains well above the 2% target for several months.
During the European session, the US Dollar (USD) seeks to maintain immediate lows, with the US Dollar Index (DXY) trading cautiously near a five-week low around 98.75.
Technical analysis of gold
On the daily chart, the XAU/USD pair is trading at around $4,190 during European trading hours on Friday. The 20-day Exponential Moving Average (EMA) rose at $4,147.96, with the price holding above it to maintain a positive bias. Pullbacks towards the 20-day EMA will find support while its slope remains higher.
The 14-day RSI is rebounding after bending to near 60.00, suggesting that momentum will remain until it maintains this level.
The 20-day EMA remains positively aligned, maintaining buying interest on dips. The uptrend line from the October 28 low at $3,933.90 supports this bias, offering support near $4,110. A daily close below this line would signal a deeper pullback towards the $4,000 psychological level, while staying above it would leave room for an extension of the advance.
(Technical analysis of this story was written with the help of an artificial intelligence tool)
Frequently asked questions about gold
Gold has played a major role in human history as it has been widely used as a store of value and a medium of exchange. Currently, apart from its luster and use in jewellery, the precious metal is widely viewed as a safe haven asset, meaning it is a good investment during turbulent times. Gold is also widely viewed as a hedge against inflation and currency depreciation because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase gold to improve the perceived strength of the economy and the currency. High gold reserves can be a source of confidence for 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 in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve assets and safe havens. When the value of the dollar declines, 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 rise 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 could cause the price of gold to rise rapidly due to its safe-haven status. As a lower-yielding asset, gold tends to rise as interest rates fall, while a higher cost of money usually negatively impacts the yellow metal. However, most of the moves depend on how the US Dollar (USD) behaves as the asset is priced in Dollars (XAU/USD). A stronger dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices higher.
