Gold Price Forecast: XAU/USD drifts higher to near $2,650 amid persistent global uncertainties
- Gold price edges higher to $2,645 in Monday’s Asian session, up 0.52% on the day.
- PBoC resumes gold purchases after a six-month pause in November.
- Traders see an 87% chance of a 25bp rate cut by the Fed on December 18.
Gold price (XAU/USD) trades with mild gains around $2,645 during the early Asian session on Monday. The renewed geopolitical tensions in the Middle East and Federal Reserve (Fed) rate cut expectations support the yellow metal. The US Consumer Price Index (CPI) for November will be in the spotlight on Wednesday.
The People's Bank of China (PBOC), China's central bank, resumed buying gold for its reserves in November after a six-month pause. This, in turn, might boost the precious metal price, as China is a major gold-consuming country. China’s gold holdings climbed to 72.96 million fine troy ounces at the end of November, up from 72.80 million troy ounces a month earlier.
Persistent global uncertainties and ongoing geopolitical tensions in Ukraine following another major attack by Russia continue to drive demand for gold as a safe-haven asset. CNN reported on Sunday that Syrian President Bashar al-Assad and his family fled to Moscow and were granted political asylum, ending 50 years of a brutal dictatorship. The downfall of Bashar al-Assad's regime could lead to a conflict involving regional countries and Turkey, the Iranian envoy to Syria said on Sunday.
Furthermore, the US November employment report on Friday suggested the labor market continues to ease gradually, leaving room for the Fed to cut interest rates in December, which lifts the Gold price as lower rates increase the appeal of holding non-yielding gold. According to the CME FedWatch tool, financial markets are now pricing in nearly 85.1% odds of a 25 basis points (bps) rate cut by the Fed on December 17-18.
On the other hand, the potential higher tariff policies by the US-elected Donald Trump could stoke inflation and convince the US central bank to adopt a cautious approach to further rate cuts. This might undermine the Greenback and act as a headwind for USD-denominated commodity price.
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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