Gold Price Forecast: XAU/USD recovers above $2,550 as US Dollar enters consolidation mode

The Gold price attracts some buyers to around $2,570 in Monday’s early Asian session.
Traders wind back expectations for a Fed rate cut in December, weighing on the yellow metal.
Geopolitical risks could boost the Gold price, a traditional safe-haven asset.

The Gold price (XAU/USD) rebounds to near $2,570, snapping the six-day losing streak during the early Asian trading hours on Monday. However, the strength of the US Dollar (USD) might cap the upside for the precious metal.

The Greenback rally in the wake of Donald Trump's election win could exert some selling pressure on the USD-denominated Gold price. The expectations of higher inflation next year due to Donald Trump’s policies have led to fewer expected rate cuts.

Furthermore, traders pared back expectations for lower rates in December after Fed Chair Jerome Powell said that the US central bank would be in no rush to cut, citing the “remarkably good” performance of the economy. Higher interest rates generally drag the Gold price lower, as it makes holding non-yielding assets like gold less appealing.

On the other hand, the rising geopolitical tensions in the Middle East and the ongoing conflict between Ukraine and Russia could boost the safe-haven flows, benefiting the yellow metal. President Joe Biden's administration has allowed Ukraine to use US arms to strike inside Russia in a significant reversal of Washington's policy in the Ukraine-Russia conflict, per Reuters.

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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