- Gold prices are trading flat around $2,650 in early Asian session on Monday.
- Huge demand from central banks and safe-haven flows could support gold prices, but President Trump's tariff plans could cap the upside.
- Investors are bracing for preliminary US December PMI numbers to be released on Monday.
Gold prices (XAU/USD) remained flat around $2,650 in early Asian trading on Monday. However, strong central bank purchases and continued geopolitical tensions in the Middle East could support the precious metal in the short term. Investors are looking for fresh stimulus as they await the release of the December US Purchasing Managers' Index (PMI) figures later on Monday.
Significant demand from central banks drives up the price of the yellow metal. Central banks have been net buyers of gold for nearly 15 years, underscoring its value as a crisis hedge and reliable reserve asset. The precious metal is expected to appreciate modestly in 2025, driven by central bank actions, geopolitical tensions and economic conditions in major markets such as the US, China and India, according to the World Gold Council.
On Sunday, the Israeli government approved a plan to double the population of the occupied Golan Heights, citing the threat from Syria, according to Reuters. Any signs of rising geopolitical tensions in the region could accelerate the flight to safe-haven assets, benefiting gold prices.
Conversely, President-elect Donald Trump's tariff plans will cause further inflation and delay the Federal Reserve's easing policy. Additionally, a strong US economy increases the opportunity cost of holding non-yielding bullion, which could push the US dollar (USD) higher and hurt USD-denominated commodity prices. “Generally speaking, we expect the U.S. economy to be stronger next year, so there will be less room for rate cuts and less tailwinds for gold,” said Julius Baer analyst Kirsten Menke. said.
Gold traders will be closely watching Wednesday's Fed meeting, where a 25 basis point (bp) rate cut is expected. Chairman Powell's speech is attracting attention as it may provide hints for U.S. monetary policy in 2025.
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 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.
