Gold Price Forecast: XAU/USD rally hits pause above $4,000 as Israel-Hamas agree to end war

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Gold price (XAU/USD) trades 0.4% higher to near $3,995.00 during the European trading session on Friday. The yellow metal stabilized after a corrective move on Thursday, which followed a fresh all-time high of nearly $4,060 posted on Wednesday.

Gold price struggles to extend its upside amid easing geopolitical risks.
Both Israel and Hamas have signed a ceasefire agreement to end the war in Gaza.
The Fed is expected to continue lowering interest rates this year.

Four-day winning streak in the precious metal halted after Israel and Hamas signed a ceasefire agreement to end the war in Gaza. According to the first phase of the ceasefire, the Israeli army has released hostages and Hamas has now 72 hours to release Israeli hostages, BBC News reported.

Theoretically, easing geopolitical tensions diminishes demand for safe-haven assets, such as Gold.

However, the outlook for the Gold price remains firm as comments from Federal Reserve officials have signaled that more interest rate cuts are highly likely in the remaining year.

On Thursday, New York Fed Bank President John Williams and San Francisco Federal Reserve Bank President Mary Daly call for more interest rate cuts this year, citing downside risks to the labour market. "We’re to a point now where the softening in the labor market looks like it could be more worrisome if we don’t risk manage it, Daly said, Reuters reported. On the current status of inflation, Daly stated that growth in price pressures has come “much less than had been feared”.

Lower interest rates by the Fed bode well for non-yielding assets, such as Gold.

Gold technical analysis

Gold price retraces after posting a fresh all-time high near $4,060. However, the overall trend of the Gold price remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around $3,834.10. The upward-sloping trendline from the August 22 low around $3,321.50 will act as key support for the Gold price.

The 14-day Relative Strength Index (RSI) stays above 60.00 for a long period, suggesting a strong bullish momentum.

On the upside, the Gold price could extend its upside towards $4,100. Looking down, the October 2 high of around $3,900 would act as key support.

Gold daily chart

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

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