The price of gold (XAU/USD) has reached $2,505 during the early Asian session on Monday, driven by hopes of potential rate cuts by the US Federal Reserve in September. Investors are closely watching the upcoming US S&P Global Purchasing Managers Index (PMI) and Fed Chair Jerome Powell’s speech for further guidance.
Last week, gold hit an all-time high as market participants anticipated interest rate cuts by the Fed. Despite better-than-expected Retail Sales data, softer inflation and labor reports, along with a decline in US Housing Starts, raised concerns about the strength of the economy. This has reinforced expectations for further Fed rate cuts, boosting the appeal of gold as lower interest rates reduce the opportunity cost of holding the precious metal.
Market sentiment was also influenced by comments from Federal Reserve Bank of Chicago President Austan Goolsbee, who emphasized the importance of cautious monetary policy amid signs that the US economy is not overheating. Currently, there is a 76% probability of a 25 basis points Fed rate cut in September, according to the CME FedWatch Tool.
Geopolitical tensions, including conflicts in the Middle East and Ukraine, have further supported demand for safe-haven assets like gold. Recent escalations between Hezbollah and Israel have heightened concerns, with reports of increased hostilities over the weekend.
Gold FAQs
What is the role of Gold in the global economy?
Gold has historical significance as a store of value and medium of exchange. It is considered a safe-haven asset, providing protection during turbulent times. Additionally, gold serves as a hedge against inflation and currency depreciation.
Why do central banks hold Gold reserves?
Central banks hold significant gold reserves to support their currencies and enhance economic stability. Increasing gold reserves can bolster confidence in a country’s solvency, with emerging economies like China, India, and Turkey actively adding to their holdings.
How does Gold correlate with other assets?
Gold typically has an inverse relationship with the US Dollar and US Treasuries, major reserve assets. It also shows an inverse correlation with risk assets, such as stocks. Geopolitical tensions, economic uncertainties, and changes in interest rates can influence gold prices.
What factors drive Gold prices?
Various factors impact gold prices, including geopolitical events, economic conditions, and changes in the US Dollar. As a non-yielding asset, gold tends to rise in response to lower interest rates and global uncertainties.