Gold Price Forecast: XAU/USD rallies further to near $4,240 due to multiple tailwinds

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Gold price (XAU/USD) extends its rally to near $4,240 during the European trading session on Thursday. The precious metal continues to move higher amid firm Federal Reserve (Fed) dovish bets and ongoing trade tensions between the United States (US) and China.

Gold price posts a fresh all-time high near $4,240.
The speculation over the Fed to cut interest rates by 50 bps in the remaining year remains firm.
US-China trade tensions increase demand for safe-haven assets.

Traders are increasingly confident that the Fed will loosen monetary conditions further amid growing concerns over US labor market conditions.

According to the CME FedWatch tool, traders see a 94.6% that the Fed will reduce interest rates by 50 basis points (bps) to 3.50%-3.75% in the remaining year.

Meanwhile, Federal Open Market Committee (FOMC) members, including Chair Jerome Powell, have also warned on downside labor market risks. On Tuesday, Fed’s Powell stated that “downside risks to the US job market have risen”, which justified the rate cut decision in September.

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

On the global front, escalating US-China trade frictions are also supporting the Gold price’s rally. Lately, US President Donald Trump announced additional 100% tariffs on China over Beijing’s export controls on rare earths and magnets.

The scenario of geopolitical tensions improves the appeal of safe-haven assets, such as Gold.

Gold technical analysis

Gold price posts a fresh all-time high near $4,246 on Thursday. The overall trend of the Gold price remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around $3,950.15. 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 $4,300. Looking down, the psychological level of $4,000 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.