Gold Price Forecast: Near-term bias remains bearish as 20-day EMA slops downwards
- Gold price declines to near $4,540, weighed down by firm US Treasury yields.
- The Fed is unlikely to cut interest rates this year.
- Higher oil prices have forced traders to price out dovish Fed bets.
Gold price (XAU/USD) trades 0.55% lower at around $4,540 during the European trading session on Tuesday. The yellow metal faces selling pressure as United States (US) Treasury Yields remain broadly firm due to expectations that the Federal Reserve (Fed) will not cut interest rates this year.
During the press time, 10-year US Treasury yields are almost flat at around 4.63%, the highest level seen in over a year.
Theoretically, higher yields on interest-bearing assets diminish the appeal of non-yielding assets, such as Gold.
Also, a higher US Dollar (USD) due to firm US bond yields is also weighing on the Gold price. As of writing, the US Dollar Index (DXY), which tracks the Greenback’s value against six major currencies, trades 0.33% higher to near 99.30. Technically, a higher US Dollar makes the Gold price an unfavorable risk-reward bet for investors.
According to the CME FedWatch tool, there is an almost 51% chance that the Fed will hold interest rates at their current levels this year, while the rest favor at least one interest rate hike.
Traders have priced out dovish Fed bets as the US inflation has increased significantly due to elevated oil prices.
Gold technical analysis
XAU/USD trades lower at around $4,540.00 as of writing. The precious metal maintains a bearish near-term tone as it holds clearly below the 20-day Exponential Moving Average (EMA) at $4,646.25. The sustained break under this dynamic barrier keeps the metal under corrective pressure, while the Relative Strength Index (RSI) at 40.04 leans toward bearish momentum without yet signaling oversold conditions, suggesting scope for further downside or extended consolidation beneath the EMA.
On the topside, the 20-day EMA at $4,646.25 is the first key resistance, and a daily close above this level would be needed to ease immediate selling pressure and open the way for a more meaningful recovery towards the May 12 high of $4,773.60. Looking down, the Gold price could slide towards $4,400 if it fails to hold the May 18 low of $4,480.58.
(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.