- Gold is seeing moderate gains as the US dollar declines.
- Investors are preparing for a significant long position in the US dollar ahead of the upcoming US Consumer Price Index (CPI) release.
- XAU/USD has undergone a bearish correction from last week’s high of $3,400.
On Wednesday, gold (XAU/USD) is trading higher, reflecting some hesitation in the market. There seems to be a cautious sentiment among investors, particularly regarding US-China trade agreements and the upcoming US CPI data, which tends to favor precious metals.
The US and China have established a “framework” for transactions aimed at easing trade tensions, trying to return to the consensus reached in Geneva last month. But, the lack of detailed information about this agreement has led to doubts about its reliability, which explains the somewhat tepid market reaction.
Now, all eyes are on the US consumer price index data, which might shed light on the influence of Trump’s tariffs on inflation. There’s a risk of an unexpected outcome that could reignite concerns about deflation, adding downward pressure on the dollar.
Technical Analysis: XAU/USD has begun bearish corrections starting at $3,400
From a technical perspective, the currency pair appears to be consolidating their losses after experiencing a bearish correction from last week’s $3,400. Price action shows “internal days” amid Friday trading ranges, with the 4-hour RSI staying relatively flat around the 50 mark.
Elliott Wave analysis suggests we’re currently in an ABC correction phase following last week’s bullish cycle completion. The upward legs (AB legs) extend above the noted $3,345 level, with potential declines to $3,375 after touching the reverse trend line.
On the downside, support levels can be found at $3,290 from June 9 and highs on May 15 and 19, with a marker at $3,245 from May 29.
XAU/USD 4-hour chart
Gold FAQ
Gold has been an essential asset throughout human history, acting as a standard of value and exchange. It’s not just prized for its beauty; many see it as a safe haven in turbulent times. It effectively hedges against inflation and currency depreciation since it isn’t tied to any government or issuer.
Central banks are the largest holders of gold. During uncertain times, they buy gold to diversify their reserves and bolster the economy’s perceived strength. In 2022, central banks added 1,136 tonnes of gold to their reserves, amounting to around $70 billion—marking the best annual purchase since records began. Countries like China, India, and Turkey are notably increasing their gold reserves.
Gold’s price tends to move inversely to the US dollar and US Treasury, both essential reserve assets. When the dollar weakens, gold prices generally rise, which allows investors and central banks to diversify. Gold also has an inverse relationship with risk assets—strong stock market rallies can pressure gold prices, but downturns in risky markets usually favor gold.
Several factors influence gold prices. Concerns regarding geopolitical instability or a recession can drive gold prices up due to its safe-haven status. Because gold doesn’t yield returns, it typically rises in low-interest-rate environments, although higher rates can weigh down prices. Still, the primary influence usually ties back to the US dollar’s performance; a stronger dollar often pushes gold prices down, while a weaker dollar could lead to higher gold prices.
