Gold price (XAU/USD) struggles to come out of woods as investors are awaiting the release of the United States core Personal Consumption Expenditure Price Index (PCE) for November, due on Friday. A report signalling that inflation remains sticky could slow down a broader rally in the Gold price as it would likely force Federal Reserve (Fed) policymakers to opt for a more restrictive monetary policy stance.
Meanwhile, Philadelphia Fed Bank President Patrick Harker joined the club and pushed back expectations of upcoming cuts in borrowing costs. Harker said he sees a soft landing, but warned that unemployment could rise moderately.
The US Dollar has been on the back foot due to soaring expectations of rate cuts by the Fed, but some still believe that the US central bank is not going to lower rates sooner amid the resilience of the US economy.
Gold price continues to trade sideways below $2,040.00. The precious metal trades inside Tuesday’s range amid the absence of a potential trigger. The broader appeal for Gold is quite bullish as short-to-long-term daily Exponential Moving Averages (EMAs) are sloping higher.
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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