Gold price (XAU/USD) falls further as upside risks of Middle East tensions ease. The precious metal remains on the backfoot as market participants expect conflicts to remain contained between Israel and Palestine. Along with fading Middle East conflicts, caution over the interest rate outlook from the Federal Reserve (Fed) has dampened appeal for the Gold.
Investors are waiting for Federal Reserve Chairman Jerome Powell’s guidance on the monetary policy meeting in December and the outlook on the economy. Fed Powell is expected to maintain the stance of keeping current interest rates higher for a longer period as cracks appear in the US job market that could restrict inflation expectations. Jerome Powell could warn for more rate hikes in case progress in inflation returns to 2% slows.
Gold price continues its three-day losing streak as investors remain cautious ahead of Powell’s commentary on interest rates. The Gold price corrects further below the 20-day Exponential Moving Average (EMA) but is likely to find support near the 50-day EMA, which trades near $1,935.00. Momentum oscillators indicate that the bullish impulse has faded but the broader trend is still upbeat.
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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