- In the early Asian session on Tuesday, gold is expected to trade around $3,325, showing some mild gains.
- Tuesday marks a meeting in London between US and China trade officials.
- For the seventh month in a row, China’s central bank has increased its gold reserves as of May.
The gold price (XAU/USD) received a boost from a weaker US dollar, hovering near $3,325 in early trading on Tuesday. Investors are looking forward to the ongoing US-China trade discussions for any new developments.
On the second day of talks in London, US and Chinese officials are engaged in discussions. President Trump expressed optimism about the outcome, stating that the talks “should be very successful.” US officials mentioned a plan to lift some technology export restrictions in return for China easing limits on rare earth material shipments.
Easing trade tensions could strengthen the dollar and potentially increase prices of various goods priced in USD. “If the meeting yields positive outcomes, it could put slight downward pressure on gold, but likely not by much,” remarked Bert Melek, head of product strategy at TD Securities.
Conversely, ongoing geopolitical tensions in the Middle East might drive demand for safe-haven assets like gold. The Israeli Foreign Ministry announced that the crew of aid vessels headed for Gaza, intercepted earlier, was docked at the Ashdod port on Monday evening.
Recent data indicated that the People’s Bank of China (PBOC) purchased gold for the seventh consecutive month in May, which may contribute to increasing gold prices. The PBOC’s reserves rose from 73.77 million ounces at April’s end to 73.83 million ounces by the end of May.
Gold FAQ
Gold has been significant in human history, recognized as a valuable medium of exchange. Beyond its luster, precious metals are often seen as safe-haven assets. Many consider gold a reliable investment during turbulent times, also serving as a hedge against inflation and currency depreciation, since it’s not tied to any particular government.
The central bank, being a major holder of currency, typically invests in gold to diversify reserves and bolster the economy’s credibility. In 2022, central banks added 1,136 tonnes of gold, valued around $70 billion, marking the highest annual purchase since records began. Countries like China, India, and Türkiye have been rapidly expanding their gold reserves.
There’s an inverse relationship between gold and the US dollar, which are both considered major reserve and safe-haven assets. As the dollar weakens, gold prices generally increase, providing diversification for investors. Gold is also affected by risk assets; typically, a booming stock market dampens gold prices while downturns increase interest in precious metals.
Various factors can influence gold prices. Fears of geopolitical instability or deep recessions can trigger rapid price increases. Being a non-yielding asset, gold often rises during periods of low interest rates, while higher interest rates exert downward pressure on its price. However, how the US dollar performs remains crucial, as gold is priced in dollars (XAU/USD). A strong dollar usually suppresses gold prices, while a weaker dollar boosts them.
