- Gold prices were trading weakly around $2,430 in early Asian trading on Monday.
- Safe-haven flows may support gold amid rising geopolitical risks.
- Traders are awaiting key U.S. economic data this week, including the Producer Price Index (PPI), Consumer Price Index (CPI) and retail sales, which could provide fresh stimulus.
Gold prices (XAU/USD) are trading lower near the $2,430 mark early Monday morning in Asia. A gradual recovery in the US Dollar (USD) has led to lower gold prices for the day, but the decline may be limited amid rising geopolitical tensions in the Middle East.
Tensions in the Middle East, along with reports pointing to an escalating war, will keep XAU/USD buying orders in check. On Sunday, Defense Minister Yoav Gallant told US Defense Secretary Lloyd Austin that Iran’s military preparations indicate the country is preparing a major attack on Israel, Axios reporter Barak Ravid reported, citing a person familiar with the call.
Rising volatility and geopolitical risks are likely to boost safe-haven flows, benefiting the precious metal. “Over the medium term, the outlook for gold remains positive and any pullbacks are likely to be short-lived due to underlying macroeconomic factors,” said Zain Bawdat, market analyst at OANDA’s Market Pulse.
Investors are divided on whether the US Federal Reserve (Fed) will take an aggressive stance on monetary policy and announce a 50 basis points (bps) or 25 bps cut in interest rates. Key economic data such as the US Producer Price Index (PPI), Consumer Price Index (CPI) and retail sales, due this week, may give some clues about the state of the economy. Better than expected data could delay or make the Fed’s further rate cuts, which are weighing on gold prices, less likely.
Gold FAQ
Gold has played a vital role throughout human history, as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster and use in jewellery, the precious metal is widely recognised as a safe haven asset and considered a good investment during volatile times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not tied to any particular issuer or government.
Central banks are the largest holders of gold. To support their currencies in times of uncertainty, central banks tend to buy gold to diversify their reserves and to impress upon them the strength of their economies and currencies. Large gold reserves can be a source of confidence in a country’s solvency. According to data from the World Gold Council, central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, the highest annual purchase since records began. Central banks in emerging countries such as China, India and Turkey are rapidly increasing their gold reserves.
Gold is inversely correlated with the US Dollar and US Treasury Bonds, the primary reserve and safe haven assets. When the US Dollar falls, gold tends to rise, allowing investors and central banks to diversify their assets during volatile times. Gold is also inversely correlated with risk assets. Rising stock markets tend to drive gold prices down, while sell-offs in risky markets tend to favor the precious metal.
Gold prices fluctuate due to a variety of factors. Geopolitical instability or fears of a deep recession can send gold prices soaring due to gold’s status as a safe haven. As a non-yielding asset, gold tends to rise in value the lower interest rates are, but rising cost of funds typically weighs on gold. Still, since the asset is priced in dollars (XAU/USD), most of the movement is determined by the movement of the US Dollar (USD). A strong dollar tends to suppress gold prices, while a weak dollar can boost gold prices.
