Gold Price Forecast: XAU/USD recovery stalls below $4.500 awaiting US Nonfarm Payrolls

Gold (XAU/USD) stagnates near $4,470 on Friday, as the prior two days' surge from $4,280 has yet to be acknowledged above the $4,500 psychological threshold. US Treasury yields have retreated from peaks amid market deliberation on the likelihood of a rate hike in September, yet investors continue to be cautious about a possible USD sell-off prior to the release of US Nonfarm Payrolls (NFP) data.

OCBC analysts highlight that gold "ascended over 2% to reach a session high near $4,510 after Waller's remarks diminished markets' anticipation of a September Federal Reserve (Fed) hike, causing UST yields and the USD to decline." While the bank remains optimistic about the pair, it advises that near-term movement may remain highly dependent on Fed rate adjustments, with NFP data potentially impacting yields and the USD.

XAU/USD is currently at $4,464, awaiting confirmation above a past support zone around $4.470 (August 20 low). Momentum indicators on the daily chart do not offer a clear picture, as the Relative Strength Index (RSI) struggles to surpass the crucial 50 line, while the Moving Average Convergence Divergence (MACD), still in negative territory, implies that downward pressure is easing rather than reversing entirely.

Gold bulls confront numerous resistances at $4,470, the psychological $4,500 mark, and especially the 200-day Simple Moving Average (SMA), now at $4,534 – a frequently observed gauge for FX traders. A confirmation above this line would indicate that the correction from $4,690 highs in late August is complete, while a drop below these levels could validate a Head and Shoulders pattern, suggesting a potential descent to the August 6 low of $4,220 and early July lows near $4,000.

Gold, a crucial element in human history, has been employed as a store of value and medium of exchange for centuries. Today, in addition to its aesthetic appeal and use in jewelry, the metal is widely regarded as a safe-haven asset, viewed favorably during turbulent times. Gold is also considered a hedge against inflation and currency devaluation, as its value is not tied to a specific issuer or government.

Central banks are the largest holders of gold, using it to bolster their currencies during volatile periods by diversifying their reserves. In 2022, central banks added 1,136 tonnes of gold, worth about $70 billion, to their holdings, the largest annual purchase since records began. Central banks from emerging economies such as China, India, and Turkey are rapidly increasing their gold reserves.

Gold has an inverse relationship with the US Dollar and US Treasuries, which are two primary reserve and safe-haven assets. When the USD depreciates, gold typically rises, enabling investors and central banks to diversify their assets during turbulent times. Gold is also inversely correlated with risk assets; a stock market rally tends to weaken gold prices, while market sell-offs often favor the precious metal.

The price can be influenced by various factors, including geopolitical instability or concerns of a severe recession, which can quickly boost gold prices due to its safe-haven status. As a yield-free asset, gold generally rises when interest rates are low, while higher borrowing costs usually hinder its performance. However, most fluctuations depend on the behavior of the US Dollar (USD), as gold is priced in dollars (XAU/USD).

A strong USD tends to keep gold prices in check, while a weaker USD is likely to push gold prices higher.