Gold (XAU/USD) extends gains for the fifth consecutive day on Thursday as the US Dollar dives on risk appetite, following the end of the US government’s closure. The precious metal appreciated to three-week highs above 4,200 and is now testing resistance at a previous support area around $4.220.of
Earlier on Thursday, US President Donald Trump signed the bill that ends the longest US government shutdown in history, which was celebrated by the market. The risk rally has sent the safe-haven US Dollar tumbling against most peers, which provided an additional impulse to Gols.
Technical Analysis: Above $4,220, the target is the $4,380 record high
The technical picture shows an improving bullish momentum. The 4-hour Relative Strength Index (RSI) is trending higher above the key 50 level, and the Moving Average Convergence Divergence (MACD) is crossing about the signal line, hinting at further appreciation.
The break of the $4,150 resistance area on Wednesday confirmed that the correction from the October highs has completed, and bulls are now attempting to breach the mentioned $4,220 level, which held downside attempts on October 20. Above here, the next target is the all-time highs around $4,380 (the highs of October 20 and 21).
On the other hand, a bearish reaction from current levels is likely to find support at the $4,150 area (October 22, 23, 24, and November 11 highs). Further down, the $4,100 area (November 11,12 lows) and a previous resistance area at $4,050 (October 31 highs) are likely to challenge bears.
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.