Gold Price Forecast: XAU/USD holds below $2,650 as traders await fresh catalysts

Gold price holds steady around $2,640 in Monday’s early Asian session.
US Manufacturing PMI improved to 49.3 in December vs. 48.4 prior, stronger than expected.
Sustained geopolitical risks and a wave of purchases by central banks could lift the Gold price.

The Gold price (XAU/USD) struggles to gain ground near $2,640 during the early Asian trading hours on Monday. The stronger US Dollar (USD) after the US ISM Manufacturing Purchasing Managers Index (PMI) weighs on the yellow metal. All eyes will be on the US labor market data for December on Friday for fresh impetus.

Data released by the Institute for Supply Management (ISM) on Friday showed that the US Manufacturing PMI rose to 49.3 in December from 48.4 in November. This reading was above the market consensus of 48.4. The upbeat data has lifted the Greenback and dragged the USD-denominated commodity price lower.

Furthermore, the US Federal Reserve's (Fed) projection of fewer interest rate cuts could undermine the non-yielding asset. The US central bank decided to cut the interest rates in December but signaled that borrowing costs will fall more slowly than previously expected this year.

On the other hand, economic uncertainties and geopolitical tensions might boost a safe-haven asset like Gold. On Sunday, Israel and Hamas wrangled over a deal to cease violence in the Gaza Strip and return hostages home as Palestinian officials said that Israeli bombardments killed over 100 people over the weekend.

Central bank purchasing activities could contribute to the precious metal’s upside. Central banks are forecast to continue to be net buyers of around 8 million oz. in 2025, roughly unchanged to a bit lower than in 2024.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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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