Gold Price Forecast: Struggles to hold above 20-day EMA

Gold price (XAU/USD) struggled to hold above its 20-day Exponential Moving Average (EMA) during the European trading session on Monday, slipping to near $4,350. The yellow metal faced downward pressure as the US Dollar (USD) remained strong, supported by expectations of further Federal Reserve (Fed) interest rate hikes this year.

The US Dollar Index (DXY) rose 0.1% to near 100.30, nearing its 50-day high of 100.56. A stronger US Dollar made Gold an unfavorable risk-reward proposition for investors. The Federal Reserve raised interest rates by 25 basis points to the 3.75%-4.00% range and indicated at least one more increase this year, based on a dot plot analysis.

Economists at NBC Economics and Strategy argued that the updated dot plot signaled "relatively broad support for more restrictive monetary policy for a significant period of time," hinting at a "higher-for-longer" policy bias. This outlook is unfavorable for non-yielding assets like Gold. In the daily chart, XAU/USD was trading at $4,349.73, maintaining a bearish near-term bias as it faced selling pressure above the 20-day EMA, approximately at $4,366.80.

Momentum was weak, with the Relative Strength Index (RSI) around 49, indicating fragile upside potential. On the upside, initial resistance lay at the 20-day EMA near $4,366.80, and a sustained break above this barrier could help ease downside pressure and pave the way for a more constructive recovery towards $4,500. On the downside, the precious metal could potentially extend its decline towards the July high near $4,200.

Gold has been a trusted store of value and medium of exchange throughout history, often seen as a safe-haven asset during turbulent times. Central banks hold the largest share of Gold reserves, using it to support currencies in turbulent situations. In 2022, central banks added 1,136 tonnes of Gold, the highest yearly purchase since records began.

Gold has an inverse correlation with the US Dollar and US Treasuries, both major reserve and safe-haven assets. When the Dollar depreciates, Gold typically rises, providing investors and central banks with a means to diversify assets in uncertain times.