Gold price (XAU/USD) struggles for direction as investors await the United States Nonfarm Payrolls (NFP) and ISM Services PMI data for October. The downside for Gold price remains cushioned due to persisting geopolitical tensions in the Middle East and expectations that the Federal Reserve (Fed) will keep interest rates elevated for a significantly longer period.
Economists see slower job growth in October as at least 30K workers of the United Auto Workers (UAW) union went on strike against Detroit's "Big Three" car makers. Apart from the headline figure of job growth, investors will also pay attention to the Average Hourly Earnings data, which will provide guidance on consumer spending and inflation. Strong wage data and healthy payrolls could elevate bets for one more interest rate increase from the Fed.
Gold price exhibits a lackluster performance around $1,990.00. The precious metal has been consolidating in a range of $1,970-$2,010 for the past five trading sessions. A volatile action in Gold is highly likely after the release of the US labor market data.
On a broader note, the trend for Gold is bullish as the 20-day and 50-day Exponential Moving Averages (EMAs) are sloping higher. Momentum indicators also oscillate in the bullish range, indicating strength in the upside momentum.
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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