Gold Price Forecast: XAU/USD falls below $4,800 as Warsh pick eases Fed independence concerns
- Gold price faces some selling pressure near $4,780 in Monday’s early Asian session.
- Reports that Kevin Warsh would be nominated as the next Fed Chair weigh on the Gold price.
- Geopolitical risks and sustained buying by central banks might cap the downside for XAU/USD.
Gold price (XAU/USD) tumbles to around $4,780 during the early Asian session on Monday. The precious metal extends the decline after reaching historic highs last week amid signs of political stability in the United States (US). Traders will take more cues from the US ISM Manufacturing Purchasing Managers Index (PMI) report later on Monday.
The yellow metal had been soaring to record highs in the previous weeks, bolstered by worries that US President Donald Trump would choose a Federal Reserve (Fed) Chairman who would cave into his demands to cut interest rates. Nonetheless, reports that Trump would nominate Kevin Warsh, who is seen as a relatively safe bet compared with other candidates, weigh on the Gold price as it eases concerns over the Fed’s independence.
On the other hand, ongoing geopolitical tensions, including US-Iran tensions, could provide some support to a traditional safe-haven asset like Gold. Iran's supreme leader Ayatollah Ali Khamenei warned over the weekend that any attack on his country would spark a regional conflict, as the US continues to build up its forces nearby.
Additionally, rising demand from major central banks could underpin the precious metal. "Investors and global central banks have... favoured gold as their reserve currency of choice, which they believe insulates them from US policy dependence," said Emma Wall, chief investment strategist at Hargreaves Lansdown. "Certain nations will have observed the threat of Russia having its US dollar assets seized by global players supportive of Ukraine, and subsequently considered the metal a more attractive neutral reserve," she added.
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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