Gold Price Forecast: XAU/USD gains momentum to near $3,350 ahead of US CPI release
- Gold price drifts higher to around $3,350 in Tuesday’s early Asian session.
- Trump threatened secondary tariffs of 100% on Russia.
- The US CPI inflation data for June will be the highlight later on Tuesday.
The Gold price (XAU/USD) gains ground to near $3,350 during the early Asian session on Tuesday. The precious metal edges higher amid safe-haven demand after US President Donald Trump threatened 100% Russia tariffs. All eyes will be on the US Consumer Price Index (CPI) inflation data, which is due later on Tuesday.
Trump late Monday threatened to impose 100% tariffs on Russia if President Vladimir Putin does not agree to a deal to end his invasion of Ukraine in 50 days. The US President added that the levies would come in the form of secondary tariffs, without providing details. Geopolitical risks could boost the Gold price, a traditional safe-haven asset, in the near term.
Nonetheless, the cautious stance of the US Federal Reserve (Fed) might undermine the yellow metal. Fed Chair Jerome Powell said that he expects inflation to increase this summer as a result of tariffs, which is seen as keeping the US central bank on hold until later in the year.
Meanwhile, Chicago Fed President Austan Goolsbee said that fresh tariffs unveiled by Trump have further muddied the inflation outlook, making it more difficult for him to support the rate cuts that the President has pressed for.
Gold traders await the US CPI data later on Tuesday, as it might offer some hints about the future path for US interest rates. Economists expect US inflation to have picked up slightly last month. However, any signs of softer-than-expected inflation could raise Fed rate cut expectations, supporting the non-yielding Gold 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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