Breaking: Gold crashes below $3,900 eyes on YTD low
- Gold breaks below $3,900, reaching its lowest level in four months.
- Strong US growth and elevated Core PCE inflation pressure bullion.
- December Fed hike odds fall to 70% from 84% after Wednesday's decision.
Gold prices plunged below $3,900 on Friday, reaching a new year-to-date (YTD) low even though expectations that the Federal Reserve will tighten policy are trimmed by investors. The XAU/USD dives almost 3% at the time of writing.
This week, US data has proven to be solid, which is positive for the Greenback. The economy grew solidly, and jobs data reveals a strong labour market. This, along with a red-hot Core PCE print, is a headwind for Bullion, although US Treasury yields ease.
The rise of the US Dollar weighs on the yellow metal, which is denominated in Dollars. Also, high Oil prices sparked by the escalation of the Middle East conflict increase the buck’s appeal.
Still, the Federal Reserve’s decision on Wednesday and the lack of forward guidance from Chair Kevin Warsh have made investors skeptical about an interest rate increase in December.
Prime Terminal is pricing at 70%, down from 84% after the Fed’s meeting.
Gold 5-minute chart
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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