Gold Price Forecast: Recoveries likely be capped as 20-day EMA slopes lower

Gold price jumps to near $4,110 amid slight weakness in the US Dollar.
The odds of the Fed hiking interest rates at least once this year have improved.
The Middle East war could be prolonged as the US attacks Iranian infrastructure.

Sagar Dua FXStreet

Gold price (XAU/USD) trades 0.8% higher to near $4,110 during the European trading session on Thursday. The precious metal gains as the US Dollar (USD) is down despite a slight improvement in expectations that the next monetary policy move by the Federal Reserve (Fed) will be on the upside.

At press time, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.1% lower to near 100.95 even after recovering over half of its early losses.

According to the CME FedWatch tool, the odds of the Fed raising interest rates at least once this year have increased to 83.4% from almost 78% recorded a week back.

Hawkish Fed prospects have increased as oil prices have bounced back strongly due to renewed Middle East tensions.

Technically, higher interest rates by the Fed bode poorly for non-yielding assets, such as Gold.

Investors worry that renewed Middle East hostilities will likely be prolonged, as the US military forces have attacked Iranian infrastructure. Earlier in the day, Iranian state media reported that multiple US artillery shells struck a railway bridge west of Aghala in Golestan, triggering several explosions.

On Wednesday, United States (US) President Donald Trump said on the sidelines of the North Atlantic Treaty Organization (NATO) summit that our military forces might hit Iran again and would also attack the power and water infrastructure of the nation, if needed.

Gold technical analysis

XAU/USD trades higher at around $4,110, but maintains a bearish near-term tone as it holds beneath the 20-day exponential moving average (EMA) at $4,153.16. The metal has been unable to reclaim this dynamic barrier, keeping the broader recovery attempts capped, while the Relative Strength Index (RSI) at 43.30 remains below neutral, hinting at subdued bullish momentum rather than a decisive rebound.

On the topside, immediate resistance is defined by the 20-day EMA at $4,153.16, and a sustained break above this level would be needed to ease current downside pressure and open the way for a more constructive bias. Further, the yellow metal could advance to near $4,200.

Looking down, the precious metal could slide to the October 28 low at $3,886.62 if it slides below the June low at $3,941.76.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

Author

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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