Gold price (XAU/USD) is on the rise, reaching $2,515 an ounce in early Asian trading on Monday. This surge is fueled by a weaker US Dollar and dovish comments from Federal Reserve Chair Jerome Powell, who hinted at upcoming interest rate cuts.
Powell’s remarks at the Kansas City Fed’s annual symposium in Jackson Hole have put pressure on the USD, with the Fed Chair stating that it’s time for the central bank to start lowering interest rates. The markets have already priced in a 25 bps rate cut, and there is a growing expectation of a deeper cut, which now stands at 36.5%.
Additionally, tensions in the Middle East have escalated, with Hezbollah launching attacks on Israel. This geopolitical turmoil has further boosted demand for safe-haven assets like Gold, making it an attractive investment option.
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.
Analysis:
The current rise in Gold prices is attributed to a combination of factors, including a weaker US Dollar, dovish comments from the Fed, and escalating tensions in the Middle East. These events have made Gold a popular choice for investors seeking a safe-haven asset during uncertain times. It is important for individuals to monitor these developments as they can have a significant impact on their financial decisions and investment strategies.