Gold Price Forecast: XAU/USD holds key 20-day EMA above $3,350, US-Iran tensions escalate

Gold price trades subduedly above $3,500 as higher US Dollar limits its upside.
Iran vows to retaliate against the US for destroying three nuclear facilities.
Fed’s Waller support interest rate cuts in July to offset upside risks to labor market.

Sagar Dua FXStreet

Gold price (XAU/USD) exhibits a sluggish performance above $3,350 during European trading hours on Monday. The precious metal trades slightly lower even though tensions between the United States (US) and Iran have escalated after Tehran vows to retaliate for striking three nuclear facilities, which was aimed to dismantle country’s ambitions.

A report from the Bloomberg showed last week that senior US officials are preparing for a possible attack on Iran as soon as the weekend, aiming to restrict Tehran from building nuclear warheads.

During the European trading session, the new head of Iran’s military, Major General Amir Hatami, said every time Americans have committed crimes against Iran, they’ve received a decisive response, and it will be the same this time, Fars news agency reported.

Theoretically, heightened geopolitical tensions improve demand for safe-haven assets, such as Gold. However, upbeat US Dollar (USD) has capped the Gold price’s upside. The US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, refreshes three-week high around 99.40. Technically, higher US Dollar makes Gold an expensive bet for investors.

Meanwhile, a slight increase in US bond yields has also weighed on the Gold price. 10-year US Treasury yields rose 0.4% to near 4.39%. Higher yields on interest-bearing assets diminish demand for non-yielding assets, such as Gold.

US Treasury yields rise even though Federal Reserve (Fed) Governor Christopher Waller has argued in favor of reducing interest rates in the July policy meeting, cited concerns over the labor market outlook. “The Fed should not wait for the job market to crash in order to cut rates," Waller said.

Gold technical analysis

Gold price trades in an Ascending Triangle formation on a daily timeframe, which indicates volatility contraction. The horizontal resistance of the above-mentioned chart pattern is plotted from the April 22 high around $3,500, while the upward-sloping trendline is placed from the April 7 low of $2,957.

The 20-day Exponential Moving Average (EMA) continues to provide support to the Gold price around $3,350

The 14-day Relative Strength Index (RSI) struggles to break above 60.00. A fresh bullish momentum would emerge if the RSI breaks above that level.

Looking up, the Gold price would enter in an unchartered territory after breaking above the psychological level of $3,500 decisively. Potential resistances would be $3,550 and $3,600.

Alternatively, a downside move by the Gold price below the May 29 low of $3,245 would drag it towards the round-level support of $3,200, followed by the May 15 low at $3,121.

Gold daily chart

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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