Gold Price Forecast: XAU/USD attracts some sellers below $2,350 ahead of US PMI data
|- Gold prices trades in negative territory near $2,325 in Monday’s early Asian session.
- Inflation in the US eased to its lowest annual rate in more than three years.
- The Middle East geopolitical tensions and the political uncertainty of France’s parliamentary election drag the Greenback lower.
Gold prices (XAU/USD) edges lower to $2,325 on Monday during the early Asian trading hours. The precious metal loses ground amid a continuation of the Federal Reserve’s (Fed) cautious stance. Investors will keep an eye on the US June ISM Purchasing Managers Index (PMI), which is expected to improve to 49.0 in June from 48.7 in May.
The US Personal Consumption Expenditures (PCE) Price Index readings fell as expected but remain elevated, triggering the US Fed to maintain its cautious stance. Data released from the US Bureau of Economic Analysis on Friday showed that the headline US PCE rose 2.6% on a yearly basis in May, compared to 2.7% in April, in line with the market estimation. Meanwhile, the core PCE inflation increased 2.6% YoY in May from 2.8% in April, matching expectations.
The Federal Reserve Bank of San Francisco President Mary Daly said on Friday that monetary policy is working, but it’s too early to tell when it will be appropriate to cut the interest rate. Daly further stated, "If inflation stays sticky or comes down slowly, rates would need to be higher for longer.” It’s worth noting that a higher interest rate generally weighs on the Gold price as it increases the opportunity cost of holding non-yielding assets.
Additionally, the Federal Reserve Bank of New York President John Williams said that inflation is still at problematic levels and the US central bank will act to lower it. The Fed Governor Michelle Bowman noted that while current Fed policies should be enough to drag inflation back to target, adding that the central bank shouldn't be unwilling to weigh further rate cuts in inflation data proves sticky.
Nonetheless, the ongoing geopolitical tensions and the uncertainty after the first round of France’s parliamentary election might boost the safe-haven flows and drag the Greenback lower, per CNN.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling 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 Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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