Gold Price Forecast: XAU/USD rises to near $2,450 due to increased risk aversion

Source Fxstreet
  • Gold price gains ground due to increased risk aversion amid raised concerns about the US economy.
  • The safe-haven demand for the yellow metal received support from escalated geopolitical tensions in the Middle East.
  • The dovish mood surrounding the Fed’s policy outlook supports non-yielding assets like Gold.

Gold price (XAU/USD) edges higher to near $2,450 per troy ounce during the Asian session on Friday. Traders await upcoming US labor market data, including the Nonfarm Payrolls and Average Hourly Earnings data for July. Recent manufacturing and employment data have raised concerns about the US economy, boosting risk aversion and supporting the safe-haven Gold.

US ISM Manufacturing Purchasing Managers Index (PMI) tumbled to an eight-month low of 46.8 in July, compared to the previous 48.5 reading and the forecasted move up to 48.8. US Initial Jobless Claims for the week ended July 26 rose to 249K from the previous week’s 235K, lurching past the forecast uptick to 236K.

Additionally, the safe-haven demand for Gold increases due to escalated geopolitical tensions in the Middle East. Tensions in the Middle East remain high following the assassination of Hamas leader Ismail Haniyeh in Iran.

According to the New York Times on Wednesday, Haniyeh was killed in Iran's capital after attending the new president's inauguration. Both Iranian officials and Hamas have accused Israel of being behind the strike.

The price of the yellow metal gained ground due to the dovish sentiment surrounding the Federal Reserve’s (Fed) policy trajectory. Fed decided to keep rates unchanged in the 5.25%-5.50% range at its July meeting on Wednesday. Lower interest rates tend to increase the appeal of non-yielding assets like Gold.

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.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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