- Gold prices lost momentum to around $2,650 in early Asian time on Monday.
- Gold prices fell due to weak Chinese economic indicators.
- US PPI report and Middle East geopolitical risks could support the yellow metal.
Gold prices (XAU/USD) inched down to $2,650, ending a two-day winning streak in early Asian trading on Monday. Weak Chinese economic data and a strong dollar are weighing on precious metals. Still, the prospect of further rate cuts this year and demand for safe-haven assets could dampen the downside.
Deflationary pressures in China increased in September. Consumer price index (CPI) inflation unexpectedly slowed in September, while producer price index (PPI) fell more than expected over the same period, highlighting the need for further stimulus. China is the world's largest consumer of gold, so sustained deflationary pressure in China is likely to put some selling pressure on the yellow metal.
The U.S. producer price index (PPI) was unchanged in September, indicating the inflation outlook remains positive and confirming expectations for a November interest rate cut from the Federal Reserve. “The PPI numbers are positive for bulls in the precious metals market and show the Fed is on track to cut interest rates by two quarter-point points this year,” said Jim Wyckoff, senior market analyst at Kitco Metals. It suggests that.”
Additionally, rising geopolitical tensions in the Middle East have sparked fears of broader war in the region, pushing up the price of traditional safe-haven assets such as gold prices. At least four Israeli soldiers were killed and more than 60 others were injured in a drone strike in north-central Israel on Sunday, according to CNN. Given the number of people injured, the attack was one of the bloodiest attacks against Israel since the war began last October. Hezbollah claimed responsibility for the attack.
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 could 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 typically 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.
