Gold is a mineral that has multiple use cases. However, one of its most significant use cases is a store of value. It has held this role for thousands of years, and if its price action is anything to go by, then gold is likely to remain a solid way to store value going into the future. But besides its long-term potential to store wealth, gold fluctuates like every other asset in the short term. So, how is gold likely to trade in the short to medium term?
XAU/USD Price Forecast
The key factor to consider is the charts for you to do an accurate XAUUSD forecast in the short term. After a rally that started in 2018, and led to gold gains of over 60%, the price has entered a corrective phase. Currently, gold is trading at around $1740, and selling volumes are rising.
If bears can push gold through the $1600 support, then prices below $1400 could be tested in the course of the year, or at some point in 2023. However, if bulls garner enough volumes and can push XAU/USD higher, they can expect to face stiff resistance at $2000, the highest price that gold has hit in the year. If bulls can push gold through the $2000 mark, then prices above $2500 could be tested in the short to medium-term.
XAU/USD key price drivers
Like every other asset, the charts only tell half the story regarding gold. The best way to try and predict gold’s potential price direction is to look at what moves its price.
Gold has, over centuries, proven to be an excellent asset to hold when risks are high. This concept has not changed with the advent of modern finance. From a look at the charts over a prolonged period, you will notice a trend.
Gold tends to underperform whenever the equity markets are performing well, and everyone expects them to keep doing well. The reverse also holds. There is a simple explanation for this inverse relationship between gold and equities.
Equities have high returns but also come with some level of risk. In essence, when investors are fearful that the equity markets could go against them, they seek capital safety. Gold has proven itself as a reliable store-of-value that comes in handy at such times.
On the other hand, when investors expect equities to do well in a market recovery, they substitute safety for higher risks and higher returns. This leads to gold prices underperforming until such a time when fear overcomes greed again.
Applying fundamentals to gold prices today
Gold was in a sharp uptrend for the first half of 2022 as equities tanked. This followed the rising inflation that has seen Central Banks raise interest rates aggressively. The risks in the equity markets were compounded by the war in Ukraine and the aggressive sanctions that followed it. This saw the equity markets hit their worst in years. The rush to safety also saw gold prices rally quite significantly in H1 of 2022.
However, in July 2022, gold entered a correction. This indicates that investors are confident that equity markets have hit the bottom or are close. Dropping gold prices are also an indicator that the markets have priced in the events in Ukraine regardless of how it plays out. Quite expected given that western companies that had a presence in Russia have left or are in the process of leaving. This could see gold prices drop further or remain in a narrow range until a future equities correction.
In the short term, XAUUSD can trade in any direction depending on prevailing factors in the broader market. If the equity markets gain upside momentum, gold could keep falling. On the flipside, XAUUSD could rally if uncertainty increases across the markets.
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