- Gold extends its reversal as a brighter market sentiment is undermining demand for safe assets.
- Hopes of a negotiated outcome in the Middle East war are feeding a mild appetite for risk on Friday.
- XAU/USD is under a growing bearish momentum after breaking below the wedge pattern.
Gold (XAU/USD) is trading lower on Friday as easing concerns of a regional war in the Middle East have undermined demand for safe havens. The precious metal has extended its reversal from weekly highs, near $3,450, and is on track for a 2.75% weekly decline on its worst weekly performance in six weeks.
US President Donald Trump calmed markets on Thursday, affirming that he will take two weeks to decide whether to attack Iran, easing fears of a full-blown war of unforeseeable consequences.
Beyond that, news that European officials are in talks with Iranian delegates has boosted hopes of a negotiated resolution of the conflict, triggering a risk rally to the detriment of Gold.
Technical analysis: Price action broke the wedge pattern
XAU/USD is featuring an impulsive reversal from the $3,450 high, which has pierced the base of an ascending wedge pattern from mid-May lows, highlighting a growing bearish momentum.
The Relative Strength Index (RSI) in the 4-hour charts is well below the 50 level with the June 12 low, at $3,340 under pressure. Below here, the next support area lies at the $3,300 area, which contained bears on June 9 and 10.
A potential bullish reaction from current levels is likely to be challenged at the reverse trendline, now at $3,390 and the June 18 high, at $3,400 area.Gold Price Forecast: XAU/USD is testing $3,340 support under growing bearish pressure.
Gold FAQs
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.
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.
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.
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.
