- Gold prices remained positive near $2,625 in early Asian trading on Thursday.
- Geopolitical risks, central bank buying, and flows into safe-haven assets could push gold prices higher.
- Expectations that the Fed will slow the pace of rate cuts could cap the yellow metal's upside.
Gold prices (XAU/USD) rose moderately to around $2,625 in early Asian time on Thursday. Uncertainty surrounding President Donald Trump's tariff policies, geopolitical risks and central bank buying are supporting the yellow metal. Nevertheless, the US Federal Reserve's cautious stance could cap gold's upside.
Traders were waiting for new triggers that could affect the Fed's interest rate outlook this year. After cutting interest rates by 25 basis points (bps) in December, Fed Chairman Jerome Powell signaled he was cautious about further rate cuts. This in turn could provide some support for the greenback and hurt USD-denominated commodity prices.
Weekly U.S. new jobless claims numbers to be released on Thursday may provide a hint about the state of the U.S. labor market. On Friday, all eyes will be on the US S&P Global Manufacturing PMI for December.
On the other hand, uncertainty surrounding President-elect Donald Trump's policies could push up precious metals. Additionally, geopolitical tensions in the Middle East and the ongoing conflict between Russia and Ukraine are expected to remain elevated this year, potentially boosting capital flows into safe-haven assets and benefiting gold prices. .
Increased demand for gold from global central banks could contribute to a rally in the precious metal. Major central banks are likely to buy even more gold in the next 12 months, according to research from the World Gold Council. This should further drive demand for the yellow metal.
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.
