Gold Price Forecast: XAU/USD loses ground below $2,700 amid firmer US Dollar
- Gold price loses ground to around $2,690 in Monday’s early Asian session.
- The upbeat US job report and surging USD weigh on the Gold price.
- Trump's policy uncertainty and geopolitical risks might cap the downside for the precious metal.
Gold price (XAU/USD) trades with mild losses near $2,690 on the stronger US Dollar (USD) broadly during the early Asian session on Monday. However, the safe-haven demand due to uncertainty surrounding the President-elect Donald Trump administration's policies might help limit the Gold’s losses.
The stronger-than-expected US employment data on Friday reinforced expectations that the US Federal Reserve (Fed) might not cut interest rates as aggressively this year. This, in turn, weighs on the non-yielding asset. Traders expect the Fed to cut interest rates by just 30 basis points (bps) over the course of this year, compared with cuts worth about 45 bps before the NFP report.
On the other hand, Trump's policy risks boosting the Gold price, a traditional safe-haven asset. "Gold is still acting resilient in the face of a much stronger-than-expected jobs report ... One of the factors that's been supporting gold is this uncertainty that we've seen going into the (U.S. presidential) inauguration," said David Meger, director of metals trading at High Ridge Futures.
Additionally, the escalating geopolitical tensions in the Middle East and the ongoing Russia-Ukraine conflict might contribute to the precious metal downside. Israeli strikes continued throughout Gaza, including attacks near Gaza City, Nuseirat, and Bureij. Two attacks were also reported in the Houmin Valley in southern Lebanon, according to Lebanon’s National News Agency.
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.