Gold Price Forecast: XAU/USD attracts some sellers below $2,450, potential downside seems limited
|- Gold price trades on a weaker note near $2,435 in Monday’s early Asian session, down 0.40% on the day.
- US Nonfarm Payrolls rose by 114K in July vs. 179K prior, weaker than expected.
- The Middle East tensions might cap the gold’s downside.
Gold price (XAU/USD) edges lower to $2,435 on Monday during the early Asian session. However, the downside might be capped due to rising expectations of rate cuts by the US Federal Reserve (Fed) and the risk-off mood amid ongoing geopolitical tensions in the Middle East.
The disappointing US July employment data raised fears of a recession and triggered the possibility of Fed rate cuts in September. "The marketplace just now is factoring in a better-than-70% chance for a 50-basis-point cut by the Fed at the September FOMC meeting," said Jim Wyckoff, senior market analyst at Kitco Metals.
The US Bureau of Labor Statistics (BLS) showed on Friday that US Nonfarm Payrolls (NFP) rose by 114K in July from the previous month of 179K (revised down from 206K), weaker than the expectation of 175K. Meanwhile, the US Unemployment Rate rose to the highest level since November 2021, coming in at 4.3% in July from 4.1% in June.
Investors will take more cues from the US ISM Services Purchasing Managers Index (PMI) on Monday, which is expected to improve to 51.0 in July from 48.8 in June, In the case of the stronger-than-expected data, this might lift the US Dollar (USD) and cap the upside for USD-denominated Gold.
On the other hand, the escalating geopolitical tensions in the Middle East might boost the safe-haven flows, benefiting the yellow metal. The BBC reported that several nations have urged their citizens to leave Lebanon as worries mount about a wider Middle Eastern war. Additionally, the US general in charge of American troops in the Middle East arrived on Saturday as preparations continued for a potential strike against Israel by Iran in retaliation for the killing of senior Hamas and Hezbollah leaders, according to two US sources.
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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