Gold Price Forecast: XAU/USD edges higher to near $4,050 amid concerns over US economy
- Gold price drifts higher to near $4,050 in Monday’s early Asian session.
- The UoM Consumer Sentiment Index for November arrived at 50.3, down from 53.6 in October.
- The US shutdown end in sight as Democrats agree to a funding deal.
Gold price (XAU/USD) trades in positive territory around $4,050 during the early Asian session on Monday. The precious metal edges higher as US private jobs data indicated a weak labor market, supporting the US rate cuts.
US Challenger job data indicated a spike in job cuts, suggesting a possible cooling in US labor market conditions. The Challenger report showed that companies cut over 150,000 jobs in October, marking the biggest reduction for the month in more than 20 years.
Traders ramped up bets on a rate cut following US Challenger jobs data, which weighed on the US Dollar (USD) and lifted the USD-denominated commodity price. Markets now see a nearly 66% possibility of a 25-basis-point (bps) rate cut in December, according to the CME FedWatch tool. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
US Consumer Sentiment was near a three-and-a-half-year low, raising concerns over the US economy. The University of Michigan (UoM) revealed on Friday that its Consumer Sentiment Index eased to 50.3 in November, the lowest level since June 2022, from a final reading of 53.6 in October. This figure came in weaker than the expectation of 53.2.
On the other hand, signs that the record-breaking US government shutdown may end could undermine safe-haven assets such as gold. Bloomberg reported early Monday that the US government shutdown is nearing an end after a group of centrist Senate Democrats agreed to support a deal to reopen the government and fund some departments and agencies for the next year.
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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