Gold falls to near $4,450 as inflation fears and rate hike prospects weigh on demand
- Gold price slumps to near $4,460 in Monday’s early Asian session.
- Fears of inflation and the prospect of higher interest rates weigh on the Gold price.
- China has expanded its gold reserves for the 16th consecutive month.
Gold price (XAU/USD) tumbles to around $4,460 during the early Asian trading hours on Monday. The precious metal remains under selling pressure amid a stronger US Dollar (USD), rising bond yields and concerns about inflation linked to energy prices.
Ongoing conflicts in the Middle East push energy prices higher and reduce expectations of US interest rate cuts. This, in turn, could weigh on the non-yielding Gold in the near term. The Federal Reserve (Fed) held interest rates steady at a target range of 3.50% to 3.75% following its March meeting last week. The median "dot plot" projection still suggested one 25-basis-point (bps) rate cut later in 2026, though some officials now expect no cuts at all this year.
On the other hand, demand from major central banks could support the yellow metal. China’s official gold reserves have reached a record 2,309 tonnes, following a 16-month consecutive buying streak by the People's Bank of China (PBoC). It’s worth noting that higher demand from China could lift the Gold price as China is the world's largest precious metal producer.
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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