Gold Prices Forecast: Can XAU/USD Maintain Its Appeal as a Safe Haven Amid a Rising U.S. Dollar?

James Hyerczyk
Published: Mar 23, 2024, 08:40 GMT+00:00

Key Points:

  • Central banks continue robust gold buying; over 1,000 tons added annually.
  • Emerging markets favor local currencies, potentially boosting gold's role.
  • Gold faces challenges with recent rise in US Treasury yields and US Dollar.
Gold Prices Forecast

In this article:

Gold Market Weekly Recap and Forecast

Record Highs Followed by Profit-Taking

Last week, gold prices achieved a significant milestone, reaching record highs near the $2,100 mark. This surge was, however, followed by a retraction, with prices pulling back as traders engaged in profit-taking. Despite this pullback, gold concluded the week on a positive note, showing a net gain, bolstered by the Federal Reserve’s expectations of three rate cuts by 2024.

Last week, XAU/USD settled at $2165.31, up $9.30 or +0.43%. This is down from a record high of $2222.915.

Weekly Gold (XAU/USD)

Physical vs. Futures Market Behavior

A notable difference was observed between the physical gold market and the futures market. While the futures market exhibited a bullish sentiment, the physical market presented a more tempered response. This divergence indicates a broader spectrum of factors influencing different segments of the gold market.

Short-Term Weakness Amid Market Adjustment

Post the record highs, the gold market has shown signs of short-term weakness, attributed to an oversold condition and profit-taking. Bullish traders are reassessing the market’s value in light of the Federal Reserve’s neutral stance. This recalibration suggests that the initial strong reaction to the Fed’s statements could have been an overextension, considering that bullish news might have been already factored in by the market.

Long-Term Bullish Outlook and Market Stabilization

Despite these short-term fluctuations, the long-term outlook for gold remains bullish. However, a phase of consolidation or stabilization is likely as the market adapts to recent highs and investor expectations adjust. Gold’s key technical support level around $2,103 will be critical in this phase. Investors and traders are expected to shift their focus from buying on strength to seeking value-oriented opportunities, particularly at current price levels.

Investment Flows and Central Bank Influence

Investment in gold witnessed a significant uptick, reaching nearly a year’s high, with a notable $1.1 billion inflow into gold funds, the highest since May 2023. The central bank’s influence, particularly the Federal Reserve’s indication of a 71% chance of a June rate cut as per the CME FedWatch Tool, continues to play a crucial role in gold’s valuation.

Weekly Forecast: Prudent Strategy and Value Seeking

In the upcoming week, the gold market is expected to experience a more cautious approach, balancing the long-term bullish sentiment with short-term market conditions. The focus will likely be on finding value rather than pursuing momentum, a strategy that aligns with the current market recalibration. As investors and traders navigate these market conditions, a more sustainable and stable rise in gold prices is anticipated, establishing a robust foundation for future growth.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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