gold The XAU/USD pair rose for the second day in a row on Monday, reaching six-week highs above $4,250. Investors’ expectations that the Fed will cut interest rates further next week are crushing the US dollar index, while moderate risk aversion supports safe-haven flows into precious metals.
A batch of weak US macroeconomic numbers released after the US government reopened strengthened the case for further monetary easing by the Fed in December, and dovish comments by Fed officials have confirmed these views. CME Group’s Fedwatch tool prices an 85% chance of a quarter-point rate cut in December with two or three more cuts in 2025.
Technical Analysis: The next resistance is at the $4,300 area
The technical picture remains positive. Momentum indicators highlight the upside, although oversold levels on the RSI on the 4-hour frame warn of an extended market and the possibility of consolidation or even a downward correction.
Bulls are struggling to consolidate above the $4,250 area at the moment. Furthermore, the psychological level at $4,300 and the top of the ascending channel from the late October lows, now at $4,305, appear as next upside targets.
Intraday low $4,220. A bearish reaction below this level will likely be challenged at the November 26-27 low of $4,140, before the November 25 low of $4,105. The bottom of the channel now lies at $4,050.
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.
