Gold Price Forecast: Struggles to hold above 20-day EMA
- Gold price declines to near $4,350 as the US Dollar reflects strength.
- The Fed is almost certain to deliver one more interest rate hike this year.
- Gold price struggles to return above the 20-day EMA.
Gold price (XAU/USD) is down 0.61% to near $4,350 during the European trading session on Monday. The yellow metal is under pressure as the US Dollar (USD) remains broadly firm amid solid expectations that the Federal Reserve (Fed) will hike interest rates again this year.
At press time, the US Dollar Index (DXY), which gauges the Greenbacks value against six major currency peers, is up 0.1% to near 100.30. The USD Index is close to its over 50-day high of 100.56 posted on Friday.
Technically, a higher US Dollar makes the Gold price an unfavorable risk-reward bet for investors.
Last week, the Fed raised interest rates by 25 basis points (bps) to the 3.75%-4.00% range and signaled at least one more this year through the dot plot.
Economists at NBC Economics and Strategy argue that the updated dot plot pointing to “relatively broad support for more restrictive monetary policy for a significant period of time.” In their view, the Fed “doesn’t see a return to a 3.5%-3.75% range until the end of 2029,” underscoring a higher-for-longer policy bias.
The scenario of higher-for-longer United States (US) interest rates bodes poorly for non-yielding assets, such as Gold.
Gold Technical Analysis
Bias: In the daily chart, XAU/USD trades at $4,349.73, maintaining a bearish near-term bias as it faces selling pressure above the 20-day exponential moving average (EMA), which is roughly at $4,366.80.
Momentum: The recent recovery attempts lack follow-through, and the Relative Strength Index (RSI) around 49 tilts slightly negative, suggesting that upside momentum remains fragile while price action stays capped beneath this short-term trend gauge.
Resistance: On the topside, initial resistance is defined by the 20-day EMA near $4,366.80, and a sustained break above this barrier would be needed to ease the immediate downside pressure and open the way for a more constructive recovery towards $4,500.
Support: Looking down, the precious metal could extend its decline towards the July high near $4,200.
(The technical analysis of this story was written with the help of an AI tool. Know more.)
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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