- Gold prices fell to around $2,680 in early Asian session on Monday.
- US dollar strength weakens the yellow metal.
- Uncertainty surrounding the global economy and geopolitical risks could increase capital flows into safe-haven assets, benefiting gold prices.
Gold prices (XAU/USD) traded in negative territory around $2,680 in early Asian trading on Monday. The decline in precious metals has been weighed down by the strength of the US dollar following Donald Trump's victory.
Meanwhile, the US Dollar Index (DXY), which measures the value of the US dollar against a basket of six global currencies, rose to a four-month high of around 105.00.
Trump's victory has raised questions about whether the Federal Reserve will cut interest rates at a slower, smaller pace. This drives up the greenback and puts pressure on gold prices in USD terms.
“This rise in the dollar and yields is putting pressure on gold, which traditionally declines as real interest rates rise,” said Matthew Jones, a precious metals analyst at London-based Metals Traders. , which reflects a decline in demand for short-term safe assets.” Solomon Global. “But from a long-term macro perspective, the future is 'as good as gold,'” Jones added.
Strong US economic data on Friday also contributed to the dollar's upside. According to preliminary figures from the University of Michigan, the US Consumer Confidence Index rose to 73.0 in November from 70.5 in October. This number exceeded the market expectation of 71.0.
On the other hand, global economic uncertainty and ongoing geopolitical tensions in the Middle East could help limit losses for the yellow metal. Israeli army chief of staff Helj Halevi has approved an expansion of the ground invasion into southern Lebanon, state broadcaster Kan reported.
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.
