Gold Price Forecast: Downward-sloping 20-day EMA backs further losses
- Gold price tumbles to near $4,530 on renewed US-Iran tensions.
- Iran’s IRGC identified a hostile aircraft and shot down an MQ-9 drone.
- The Fed is unlikely to cut interest rates this year.
Gold price (XAU/USD) trades 0.85% lower to near $4,530 during the European trading session on Tuesday. The precious metal faces selling pressure amid growing concerns over the longevity of the ceasefire in the Middle East.
During the day, Iran’s Islamic Revolutionary Guard Corps (IRGC) reported that it identified hostile aircraft entering its airspace and intercepted an MQ-9 drone.
On Monday, the Iranian state media also reported that explosions had been heard in the Iranian city of Bandar Abbas for reasons that remain unclear, which were described as “self-defense” by the United States (US) Central Command.
Theoretically, escalating geopolitical tensions improve the appeal of safe-haven assets, such as Gold; however, it is under pressure due to the oil price recovery, in the wake of Middle East uncertainty, which has already prompted US inflation and eradicated hopes of interest rate cuts by the Federal Reserve (Fed) for the year.
According to the CME FedWatch tool, the odds of the Fed holding interest rates at their current levels this year are 43.5%, while the rest are in favor of at least one interest rate hike this year.
Gold technical analysis
XAU/USD trades lower at around $4,530, holding a bearish near-term bias, as spot remains below the 20-day Exponential Moving Average (EMA) at $4,601.20.
The Relative Strength Index (RSI) wobbles inside the 40.00-60.00 zone for a longer period, demonstrating indecisiveness among investors.
On the topside, immediate resistance is defined by the 20-day EMA at $4,601.20, and a daily close above this barrier would be needed to ease the current bearish tone and open the way for a more sustained recovery towards the May 12 high at $4,773.60. Looking down, the Gold price could slide towards the March 26 low at $4,351.23 if it declines below the May 20 low at $4,453.72
(The technical analysis of this story was written with the help of an AI tool.)
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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