Gold Price Forecast: XAU/USD tests $4,300 amid Fed tightening hopes, geopolitical tensions

Gold (XAU/USD) declined on Wednesday amid growing expectations of Federal Reserve (Fed) rate hikes and heightened geopolitical tensions. The precious metal is currently testing the $4,300 support area, down 3.25% for the week. Fed Chairman Kevin Warsh hinted at a potential September rate increase during the Jackson Hole central banker’s summit, raising concerns about inflation.

Tensions between the US and Iran have increased risk aversion, providing support for the safe-haven USD. The US military recently launched strikes on Iranian positions in Iran, inciting retaliatory attacks on US bases in Bahrain, Iraq, and Jordan. XAU/USD trades at $4,310, below the 200-day SMA with negative momentum indicators.

A break below the $4,300 level could open the path to the August 6 low near $4,225. The previous support area around $4,450 is now seen as resistance, with the 200-day SMA at $4,530 challenging bulls. Central banks are the largest holders of gold, often diversifying their reserves during turbulent times. In 2022, central banks added 1,136 tonnes of gold, the highest purchase since records began.

Gold has an inverse correlation with the USD and US Treasuries, while being inversely correlated with risk assets. Gold tends to rise with lower interest rates and weak USD, while declining with higher rates and a stronger USD.