Gold remains below $5,050 despite Fed rate cut bets, uncertain geopolitical tensions
- Gold may rise after a softer January CPI strengthened expectations of Fed rate cuts later this year.
- US Consumer Price Index rose 2.4% YoY in January; monthly inflation eased to 0.2%, both below forecasts.
- Traders watch renewed US-Iran nuclear talks and US-led Ukraine peace efforts resuming on Tuesday.
Gold (XAU/USD) edges lower after registering over 2% gains in the previous session, trading around $5,030 per troy ounce during the Asian hours on Monday. However, the non-interest-bearing Gold could further gain ground following softer January Consumer Price Index (CPI) figures, which reinforced expectations that the Federal Reserve (Fed) could cut rates later this year. It is important to note that lower yields reduce the opportunity cost of holding non-yielding assets like Gold.
The US Consumer Price Index rose 2.4% year-over-year (YoY) in January, slowing from 2.7% in December and coming in below the 2.5% forecast. On a monthly basis, consumer inflation moderated to 0.2%, down from 0.3% previously and under market expectations of 0.3%.
Moreover, stabilizing the US labor market supports the market's expectations of the Fed keeping rates unchanged in March before delivering two 25-basis-point cuts by year-end. US Nonfarm Payrolls increased by the most in over a year, while the Unemployment Rate unexpectedly declined, pointing to a stabilizing labor market.
Traders are closely watching renewed nuclear negotiations between the US and Iran, along with US-led efforts to end the war in Ukraine, both set to resume on Tuesday. Any setbacks could sway risk appetite and safe-haven flows.
Precious metals, including Gold, stayed underpinned by persistent geopolitical tensions, robust central bank purchases, and investor moves away from sovereign bonds and currencies.
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.
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