Gold price trades with modest gains, remains close to all-time peak touched on Wednesday
|- Gold price attracts some dip-buying following the overnight pullback from the record high.
- Bets that the Fed will begin its rate-cutting cycle in September continue to act as a tailwind.
- A modest USD uptick, along with the risk-on environment, might cap further intraday gains.
Gold price (XAU/USD) ticks higher during the Asian session on Thursday and for now, seems to have stalled its retracement slide from a fresh record high touched the previous day. The precious metal currently trades just above the $2,460 level, though a combination of factors might keep a lid on any meaningful intraday appreciating move.
The US Dollar (USD) attracts some buyers and reverses a part of the previous day's heavy losses to a nearly four-month low in the wake of a modest uptick in the US Treasury bond yields. This, along with the prevalent strong bullish sentiment across the global equity markets, could act as a headwind for the safe-haven Gold price. The near-term bias, however, seems tilted firmly in favor of bullish traders.
Investors now seem to have fully priced in a 25-basis point (bps) interest rate cut by the Federal Reserve (Fed) in September. Moreover, market participants expect the US central bank to lower borrowing costs again in December in the wake of cooling inflationary pressures. This should cap the upside for the US bond yields and the USD, which, in turn, might continue to benefit the non-yielding Gold price.
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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