Gold price (XAU/USD) holds onto recovery prompted by a steady interest rate decision from the Federal Reserve (Fed). The precious metal aims to generate more gains in hopes that the Fed has concluded its rate-tightening campaign. Federal Reserve chairman Jerome Powell said progress was being made with inflation and whilst another rate hike was not out of the question he sounded less committed to the idea. As a consequence the US Dollar (USD) weakened and XAU/USD got a shot in the arm.
The downside in the yellow metal also remains cushioned due to Middle East conflicts and mixed US data. US private payrolls and Manufacturing PMI for October failed to meet expectations. Going forward, the Gold price and the US Dollar would be impacted by the Nonfarm Payrolls (NFP) for October. Investors would keenly watch for wage growth as it will exhibit a consumer spending outlook.
Gold price turns sideways around $1,990 after discovering buying support near $1,970 as investors seek fresh development on Israel-Palestine tensions. The precious metal continues to trade inside the $1,970-2,010 range ahead of the crucial labor market data. The yellow metal aims to recapture the psychological resistance of $2,000 as the broader outlook is bullish due to the upward-sloping 50 and 200-day Exponential Moving Averages (EMAs).
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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