- XAU/USD is holding north of the $2,600 per ounce area, but upside momentum remains limited.
- Another wave of risk-off market sentiment pushed gold higher in the year-end market session.
- Global markets will be largely closed on Wednesday for the New Year holiday.
The XAU/USD pair had a quiet Tuesday, rising back to $2,625.00 an ounce after a quick technical bounce from the $2,600 level at the start of the week. Markets have been trading within tepid ranges for much of the holiday season as investors wind down the year and wait for more fundamental drivers to kick off the next phase of market activity in either direction.
Investors spent most of 2024 having fun, with global markets rising on the back of a strong AI-fueled technology rally that pushed stock indices to record levels. Gold also saw a stellar yearly performance, rising 40.61% from bottom to top and hitting record highs above $2,790 in October. Despite the sharp decline in November, the XAU/USD pair has closed higher or higher for all but two of the past eleven months.
Gold’s upper momentum near $2,800 faded just as the US Dollar (USD) bottomed out in 2024, meaning the inverse relationship between the two assets remains strong. A shift in the US Dollar Index (DXY) could lead to a new high in XAU/USD quotes. On the downside, inconsistent policy from incoming US President Donald Trump could undermine investors’ hopes for a continued rally into 2025, which would send the US dollar higher on risk-off flows, and could drag gold prices towards decline.
XAU/USD price forecast
XAU/USD may hold above the $2,600 level during the holiday season, but bidders remain tied below the 50-day Exponential Moving Average (EMA) that is drifting towards $2,635. Quotes are maintaining above the waterline set at the recent swing low at $2,560, but a recovery from the December peak north of $2,720 appears not to be on the table in the near term.
The immediate technical floor is set for another bearish move at the 200-day EMA near $2,485, while bidders will look for a full-blown rebound to grab the upper bound and claim the $2,800 handle.
Daily chart of XAU/USD
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.