Gold Price Forecast: XAU/USD holds gains above $4,600 as bullish bias prevails

Gold (XAU/USD) continues its upward trend for the second consecutive day, reaching approximately $4,610 during European trading hours on Friday. This precious metal is currently trading within an ascending channel, indicating a strong bullish sentiment. The XAU/USD pair maintains a constructive bullish bias as it stays above both the nine-period and 50-period Exponential Moving Averages (EMAs), aligning short- and medium-term trends to the upside.

The 14-day Relative Strength Index (RSI) is at around 67, suggesting dominant upside momentum, albeit approaching the overbought range.

Gold could climb towards its three-month peak of $4,697.07, achieved on August 25. Should the price break above this level, the XAU/USD pair may target the upper edge of the ascending channel, near $4,850.00. On the downside, the immediate support lies at the nine-day EMA of $4,557.72, followed by the lower boundary of the ascending channel at $4,500.

A dip below this support zone would weaken the bullish bias, potentially driving the Gold price down to test the 50-day EMA at $4,336.84 and the three-week low of $4,311.04, recorded on August 14.

Deutsche Bank analysts point to a favorable backdrop in rates and commodities, noting that the 10-year US Real Yield is at 2.34% (2 basis points) and the 10-year US Breakevens at 2.33% (1 basis point), both of which have increased. Additionally, the 10-year German Breakeven is at 2.13% (2 basis points). Credit markets remain steady, with iTraxx Europe 125 at 51 (unchanged), CDX 125 at 50 (unchanged), and CDX EM at 98.4 (unchanged).

Financial indices have seen minimal movement, with iTraxx Sen Fin at 54 (unchanged) and iTraxx Sub Fin at 87 (+1).

Commodities and currencies also influenced the Gold price. West Texas Intermediate (WTI) Oil increased by 1.94%, reaching $83.13, while the Euro showed a slight weakening, trading at 1.165 against the US Dollar. Equity markets in Asia displayed positive sentiment, with the NIKKEI up 0.74% and the Hang Seng at 0.47%. Volatility eased as the VIX dropped to 14.51 (0.70%).

Despite its historical significance as a store of value and medium of exchange, Gold's price has been affected by various factors in recent times. Currently, with rising real yields and a softer Euro, Gold faces pressure. Central banks, as the largest holders of Gold, often diversify their reserves by purchasing the metal to bolster their currencies during economic turbulence.

Their recent addition of 1,136 tonnes of Gold in 2022, representing around $70 billion, underscores this trend. Gold has an inverse relationship with the US Dollar and US Treasuries, typically rising when the Dollar depreciates, offering investors and central banks a hedge against economic uncertainties. Conversely, Gold tends to perform poorly against risk assets, such as stocks, which generally decline during market sell-offs.

Geopolitical tensions or recession fears often boost Gold's price due to its safe-haven status, while a stronger Dollar generally restrains Gold prices.