- Gold prices attracted some buyers in the early Asian session on Monday, rising to nearly $2,720.
- Escalating geopolitical tensions between Russia and Ukraine are driving up gold prices.
- The Fed's cautious stance could cap gold's upside.
Gold prices (XAU/USD) soared to around $2,720 early Monday Asian time. A decline in the U.S. dollar (USD) provides some support for gold prices denominated in USD. Additionally, rising geopolitical tensions continue to support safe haven assets such as the yellow metal.
Investors will be closely monitoring developments surrounding the conflict between Russia and Ukraine. Last week, days after reports that Washington, D.C. had authorized Ukraine to use U.S.-made weapons to strike deep into Russian territory, Russian President Vladimir Putin announced a nuclear attack in response to a broader conventional attack. standards have been lowered. This could encourage the flow of funds into safe-haven assets, benefiting precious metals prices.
David Meagher, director of metals trading at Highridge Futures, said: “It's really been one of the major geopolitical factors that has been at play here in the gold market over the last few days. Tensions between Ukraine and Russia.'' Perhaps the most notable increase is the rise in
However, several Federal Reserve officials remain cautious about cutting interest rates that could dampen gold's rise. Markets are adjusting expectations for the Fed's interest rate cuts next year as concerns about inflation grow. Higher rates make gold less attractive. Futures traders are now pricing in a 50.9% chance that the Fed will cut interest rates by a quarter of a percentage point, down from about 69.5% a month ago, according to the CME FedWatch tool.
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.
