Gold Price Forecast: XAU/USD rallies beyond $4,100 on risk-off trading

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Gold extends gains beyond $4,100 after bouncing from the $4,000 area.
Risk aversion and weak US employment figures have given a fresh push to precious metals.
XAU/USD's strong recovery suggests that the bearish correction from $4,245 might be completed.

Gold (XAU/USD) is trading higher for the second consecutive day on Wednesday, reaching intra-week highs, right above $4,100, favoured by the risk-averse markets and heightened hopes that the US Federal Reserve might ease monetary policy at its December meeting.

US employment data disappointed on Tuesday, with Initial Jobless Claims growing and the ADP Weekly Employment Change showing that businesses kept laying off workers in the four weeks to November 1. These figures add pressure on the Federal Reserve to cut interest rates further, although the market is likely to wait for Thursday’s Nonfarm payrolls figures to confirm those views.

Technical Analysis: Potential trend shift for Gold

Gold has bounced from the 78.6% Fibonacci retracement of the early November rally, near $4,000, and is now eroding resistance at $4,105 (November 17 high). The 4-Hour Relative Strength Index (RSI) has bounced up from the 50 level, and the Moving Average Convergence Divergence is about to cross above the signal line, which suggests that the correction from $4,145 highs might have completed.

To the upside, if the pair manages to hold above the $4,100 area, bulls might gain confidence to test a previous support level at $4.150 (November 13 low) ahead of the November 14 high, at $4,210, and the monthly high, at the mentioned $4,245 level.

A bearish reaction from current levels, on the contrary, is likely to be challenged at the session lows of $4,055 ahead of Tuesday's low, at the $4,000 level. Further down, the November 4 low, in the area of $3,930, would come into focus.

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.