- Gold prices rose to $2,665 in early Asian session on Monday.
- Rising geopolitical tensions in the Middle East and Fed rate cuts are supporting gold prices.
- Investors are awaiting China's PMI to be released on Monday.
Gold prices (XAU/USD) recovered to near $2,665 in early Asian trading on Monday. Precious metals have been buoyed by geopolitical risks and growing expectations that the Federal Reserve will make another big interest rate cut in November.
According to CNN, Israel continues to carry out airstrikes against Hezbollah targets in Lebanon, killing more than 100 people and wounding more than 350 on Sunday. Elevating tensions in the Middle East following Israel's assassination of Hezbollah leader Hassan Nasrallah and escalating conflict along the border with Lebanon could increase flows of safe assets and benefit gold prices.
The personal consumption expenditures (PCE) price index rose 2.2% in August from a year earlier, slower than the 2.5% rise in July and the expected 2.3% increase, according to data released Friday by the U.S. Bureau of Economic Analysis (BEA). . %. Meanwhile, core PCE rose 2.7% over the same period, in line with market expectations. On a monthly basis, the PCE price index rose 0.1%, in line with analyst forecasts.
PCE data provided the latest sign that U.S. price pressures are easing, raising expectations that the Fed will cut rates further this year. Interest rate cuts by the US Federal Reserve are likely to make interest-free gold prices more attractive.
Gold traders will be watching China's Purchasing Managers Index (PMI) for fresh stimulus. The NBS manufacturing PMI is expected to improve to 49.5 from 49.1 in September, while the services PMI is expected to rise to 50.4 in September from 50.3 previously. The weaker-than-expected data could weigh on the yellow metal, China's biggest gold importer.
Gold FAQ
Gold has played an important role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from their brilliance and use as jewellery, precious metals are widely seen as safe assets, meaning they are considered a good investment in turbulent times. Gold is also widely seen as a hedge against inflation and currency depreciation, as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. With the aim of supporting their currencies in times of turmoil, central banks tend to purchase gold to diversify foreign exchange reserves and improve perceptions of economic and currency strength. High gold reserves can be a source of confidence in a country's solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase amount since records began. Central banks in emerging countries such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve and safe haven assets. Gold tends to rise when the dollar falls, allowing investors and central banks to diversify their assets during times of turmoil. Gold is also inversely correlated with risk assets. Rising stock markets tend to push gold prices down, while declines in riskier markets tend to favor the precious metal.
Prices may vary depending on various factors. Geopolitical instability and fears of a deep recession can cause the price of gold to quickly rise from its safe-haven status. Gold, a non-yielding asset, tends to rise when interest rates fall, but rising costs usually put pressure on the yellow metal. Still, most moves will depend on how the US dollar (USD) behaves, as the asset is priced in dollars (XAU/USD). A strong dollar tends to suppress gold prices, while a weak dollar can push gold prices up.
