Gold Price Forecast: Can XAU/USD extend gains with bulls held below $4,050?

Gains beyond $4.050 remain elusive for Gold bulls after Tuesday’s steep reversal from the $4,150 zone.
A sharp rally in the US Dollar follows stronger US inflation readings, which have lifted expectations of additional Fed tightening.
Sellers appear to be gaining control of XAU/USD, with a bearish engulfing candle emerging on the daily chart.

Bears retain the upper hand in Gold (XAU/USD) on Wednesday, as a modest recovery fails to give bulls a firm foothold above $4.050 during European trading. This follows Tuesday’s sharp reversal from resistance around $4,150. Precious metals remain under pressure as the US Dollar (USD) strengthens broadly on growing expectations of a December interest rate hike by the Federal Reserve (Fed), while Oil prices recover from their lows.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The previously subdued US Dollar received fresh support from Tuesday’s US data, which showed October consumer inflation exceeding expectations. The figures strengthened the argument for another round of Fed tightening in December.

Further support for that interpretation came from US central bank officials earlier on Wednesday. Philadelphia Fed President Anna Paulson advocated “further gradual tightening” to return inflation to target. Dallas Fed President Lorie Logan subsequently said that “it is clear that the Fed needs at least two more quarter-percentage-point increases,” giving the US Dollar another lift and putting precious metals under pressure.

Technical Analysis: Is a Double Top Taking Shape Around $4,150?

Despite trading at $4,050 and retaining a constructive near-term outlook from the late-October lows, XAU/USD is showing signs of fading buying interest. A bearish engulfing candle on the daily chart and a possible Double Top (DT) around $4,150 point to buyers losing their grip. The bearish assessment is reinforced by the 4-hour Relative Strength Index, which remains below the crucial 50 mark, and the Moving Average Convergence Divergence (MACD) indicator, which stands in negative territory at -9.51.

The first support zone spans $4,030 to $4,023, corresponding to the November 6 and 10 lows, respectively. A decisive breach of this zone would validate the DT pattern and increase downside pressure towards roughly $3,970, where the November 2 and 3 highs lie. The pattern’s measured target is near $3,911, the November 3 low.

For any recovery, the intraday high of $4,066 stands in the way of the key resistance zone around $4,150, marked by the November 5 and 9 highs.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Gold: Frequently Asked Questions

What Makes Gold an Investment Choice?

Throughout human history, Gold has been important both as a means of exchange and as a way to preserve value. Beyond its lustre and use in jewellery, the metal is now widely regarded as a safe-haven asset, or an attractive investment during periods of uncertainty. Its independence from any particular issuer or government also underpins its widespread reputation as a hedge against inflation and currency depreciation.

Which Buyers Hold the Largest Gold Reserves?

The largest holders of Gold are central banks. To support their currencies during uncertain periods, they typically diversify reserves and purchase Gold, helping to strengthen perceptions of both the economy and its currency. Substantial Gold holdings can bolster confidence in a country’s solvency. According to World Gold Council data, central banks increased their reserves by 1,136 tonnes of Gold, valued at approximately $70 billion, in 2022. That marked the largest annual purchase since records began. Emerging-economy central banks, including those in China, India and Turkey, are rapidly expanding their Gold reserves.

How Does Gold Move Relative to Other Assets?

An inverse relationship links Gold with the US Dollar and US Treasuries, both of which are important reserve and safe-haven assets. Dollar weakness generally supports Gold, allowing investors and central banks to diversify their holdings in unsettled times. The metal also tends to move in the opposite direction to risk assets: rising equity markets usually weigh on Gold prices, whereas selling in riskier markets generally supports the precious metal.

Which Factors Drive Gold Prices?

Many factors influence Gold prices. Its safe-haven appeal means geopolitical turmoil or concerns about a severe recession can trigger rapid price increases. Since Gold offers no yield, lower interest rates generally support it, while a higher cost of borrowing typically puts pressure on the metal. Nevertheless, the behaviour of the US Dollar (USD) drives most price movements because Gold is quoted in dollars (XAU/USD). Dollar strength generally restrains Gold prices, while a weaker Dollar is likely to lift them.