- Gold price loses ground to around $2,680 in the Asian session on Monday.
- USD strength undermines the yellow metal.
- Uncertainty around the global economy and geopolitical risks could boost safe haven flows, benefiting the price of gold.
The price of Gold (XAU/USD) is trading in negative territory near $2,680 during the Asian session on Monday. The precious metal’s decline is pressured by a stronger US Dollar (USD) due to Donald Trump’s victory.
Meanwhile, the US Dollar Index (DXY), an index of the value of the USD measured against a basket of six global currencies, extends its rise to around 105.00, a four-month high.
Trump’s victory has raised questions about whether the US Federal Reserve (Fed) could proceed to cut rates at a slower pace and to a lesser extent. This, in turn, boosts the Dollar and weighs on the price of USD-denominated Gold.
“This rally in the dollar and yields has put pressure on gold, which traditionally falls as real interest rates rise, reflecting reduced demand for short-term safe haven assets,” said metals analyst Matthew Jones. precious metals at London-based metals trader Solomon Global. “However, from a long-term macro perspective, the future is ‘as good as gold,'” Jones added.
Upbeat US economic data on Friday contributes to the rise of the USD. The US Consumer Sentiment Index rose to 73.0 in November from 70.5 in October, according to the University of Michigan’s preliminary reading. This figure was better than the market expectation of 71.0.
On the other hand, global economic uncertainty and ongoing geopolitical tensions in the Middle East could help limit the yellow metal’s losses. The chief of staff of the Israeli army, Herzi Halevi, approved the expansion of the ground invasion of southern Lebanon, the state channel Kan reports.
Gold FAQs
Gold has played a fundamental role in human history, as it has been widely used as a store of value and medium of exchange. Today, apart from its brilliance and use for jewelry, the precious metal is considered a safe-haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation, since it does not depend on any specific issuer or government.
Central banks are the largest holders of Gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase Gold to improve the perception of strength of the economy and currency. High Gold reserves can be a source of confidence for the solvency of a country. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase since records exist. Central banks in emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
The price of Gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, the price of Gold tends to rise when interest rates fall, while rising money prices tend to weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is traded in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold in check, while a weaker Dollar is likely to push up Gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
