Gold Price Forecast: XAU/USD climbs above $4,600 as geopolitical tensions escalate
- Gold price jumps to around $4,615 in Thursday’s early Asian session.
- Geopolitical risks and economic uncertainties boost the safe-haven flows, benefiting the Gold price.
- Markets anticipate the Fed will keep rates unchanged for the next several months.
Gold price (XAU/USD) climbs to near $4,615 and is set to retest a record high during the early Asian session on Thursday. The precious metal extends its upside as traders flock to safe havens amid geopolitical and economic uncertainties. Traders brace for the weekly US Initial Jobless Claims report, which will be released later on Thursday.
Tensions in Iran rise after US President Donald Trump threatened to take action over a violent crackdown against protestors, with the US moving military staff and the Iranian government warning neighboring countries against assisting an attack.
On Tuesday, Trump canceled all meetings with Iranian officials and promised protesters that help is on the way, without specifying what he meant. Such developments tend to boost demand for Gold as a traditional safe-haven asset, as investors seek protection against potential conflict escalation.
Furthermore, concerns over the Federal Reserve’s (Fed) independence might contribute to the yellow metal’s upside. Fed Chair Jerome Powell said on Sunday that the Fed has received subpoenas from the Justice Department over statements he made to Congress last summer on cost overruns for a $2.5 billion building renovation project at the central bank's headquarters in Washington. Powell called the threats a "pretext" for putting pressure on the US central bank to cut the interest rates.
On the other hand, rising expectations that the US central bank will keep rates on hold for the next several months could weigh on the non-yielding precious metal. The US Bureau of Labor Statistics (BLS) revealed last week that the Unemployment Rate in the US ticked lower to 4.4% in December. Additionally, data released on Wednesday showed that the US producer prices picked up slightly in November, while US Retail Sales increased more than expected during the same period.
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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