Gold Price Forecast: Mean-reversion move to 20-day EMA looks likely

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Gold price (XAU/USD) holds onto Thursday’s strong recovery move to near $4,220 during the European trading session on Friday. The precious metal reflects strength amid intensified hopes that the United States (US) and Iran will sign a Memorandum of Understanding (MoU) by the weekend.

Gold price clings to Thursday’s gains around $4,220 on US-Iran deal hopes.
An MoU between the US and Iran will likely be signed by the weekend.
The Gold price is expected to extend its recovery to near the 20-day EMA.

A Bloomberg report has stated that the US and Iran will sign an MoU in the G7 Summit in Geneva by Sunday, a move that will lead to an immediate opening of the Strait of Hormuz, a vital passage to one-fifth of global energy supply.

The Gold price underperformed in the last few months, as oil prices rallied due to the Hormuz closure that led global inflation higher and forced traders to price out dovish expectations for global central banks.

Theoretically, easing dovish expectations for central banks bode poorly for non-yielding assets, such as Gold.

Gold technical analysis

XAU/USD trades firmly near $4,215.34, but maintains a bearish near-term bias as spot holds well beneath the 20-day Exponential Moving Average (EMA) at $4,398.58. The persistent placement of price below this short-term trend gauge suggests rallies remain corrective for now, while the Relative Strength Index (14) near 36 stays in bearish territory but above oversold, hinting that downside pressure is present yet not exhausted.

On the topside, the 20-day EMA at $4,398.58 is the first meaningful resistance that bulls would need to reclaim to ease immediate downside pressure and open the door to a more sustained recovery. Looking down, the psychological level of $4,000 is the immediate support level. A downside move below the same would open the door for further downside towards $3,900.

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

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.