- Gold price posts modest gains to near $2,920 in Thursday’s early Asian session.
- Uncertainty and safe haven buying provide some support to Gold.
- A hawkish Fed might cap the upside for the Gold price.
Gold price (XAU/USD) trades with mild gains around $2,920 during the early Asian session on Thursday. Trade tensions and economic uncertainty continue to drive demand for safe-haven assets like Gold.
Late Wednesday, US President Donald Trump reiterated his insistence on 25% tariffs on Canada and Mexico, as well as adding the European Union (EU) to the mixed list of countries from which he will penalize US consumers for importing. Trump added that tariffs on Canada and Mexico will go into effect on April 2.
Market players will closely watch the developments surrounding further Trump’s tariff policies. The tariff uncertainty could boost the safe-haven flows, benefiting the precious metal.
On the other hand, Trump’s plans for higher tariffs have raised inflation worries at the US Federal Reserve (Fed), which might convince the US central bank to keep interest rates higher for longer. This, in turn, might cap the upside for the precious metal as higher interest rates tarnish non-yielding gold's appeal.
Additionally, analysts suggest that the pullback is part of a normal profit-taking cycle, with long-term bullish remains in place. “We continue to see an overall upward trend,” said David Meger, director of metals trading at High Ridge Futures. “This appears to be routine profit-booking rather than a shift in sentiment,” Meger added.
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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