Gold Price Forecast: XAU/USD holds above $3,300 on economic uncertainty, geopolitical risks
- Gold price edges higher to near $3,310 in Monday’s early Asian session.
- Economic uncertainty and geopolitical risks provide some support to the Gold price, a safe-haven asset.
- US PCE inflation eased to 2.1% YoY in April, softer than expected.
The Gold price (XAU/USD) rebounds to around $3,310 during the early Asian trading hours on Monday. Ongoing tariff uncertainty and persistent geopolitical tensions boost demand for safe-haven assets like gold. Investors will keep an eye on the US May ISM Manufacturing Purchasing Managers' Index (PMI) report, which is due later on Monday.
The precious metal drifts higher amid renewed tensions between the United States (US) and China. US President Donald Trump claimed on Friday that China had violated their trade agreement. This, in turn, has fueled uncertainty in global markets and provided some support to the Gold price.
However, US Treasury Secretary Scott Bessent said on Sunday that Trump and Chinese President Xi Jinping are likely to speak soon to iron out trade issues, including a dispute over critical minerals. Any positive developments surrounding the US-China trade talks might cap the upside for the yellow metal.
Additionally, the escalating geopolitical tensions in the Middle East underpin the yellow metal. The BBC reported early Monday that Ukraine said it completed its biggest long-range attack of the war with Russia on Sunday, following the use of smuggled drones to launch a series of major strikes on 40 Russian warplanes at four military bases.
A softer US inflation report keeps hopes for a rate cut alive. The US Personal Consumption Expenditures (PCE) Price Index rose 2.1% year on year in April, compared to 2.3% in March, the US Bureau of Economic Analysis showed on Friday. This figure came in below the 2.2% forecast.
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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