Gold price surges to record high on safe-haven demand, US rate cut hopes
- Gold price jumps to a record high in Monday’s early European session.
- Weaker US Dollar and safe-haven flows support the Gold price.
- Financial markets are set for muted trading as traders look ahead to the long holiday period.
Gold price (XAU/USD) rises to an all-time high near $4,300 during the early European trading hours on Monday. The precious metal gains momentum on the expectation of US Federal Reserve (Fed) interest rate cuts after signs of softer US inflation and cooler jobs reports. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Additionally, persistent safe-haven demand amid the Israel-Iran conflict and the rise in US-Venezuela tensions might contribute to the yellow metal’s upside. It’s worth noting that traders seek assets that can preserve value during periods of uncertainty, which supports the Gold price.
Financial markets are likely to trade in a subdued mood, and traders might book profits ahead of the long holiday period. This, in turn, might cap the upside for the precious metal. The US Chicago Fed National Activity Index report for September will be published later on Monday. On Tuesday, the preliminary reading of the US Gross Domestic Product (GDP) for the third quarter (Q3) will be in the spotlight.
Daily Digest Market Movers: Gold rises amid Fed rate cut expectations, safe-haven flows
- The US is still in pursuit of a third oil tanker near Venezuela, officials told Reuters on Sunday, as US President Donald Trump intensifies an oil blockade on Nicolás Maduro’s government.
- Israel's Prime Minister Benjamin Netanyahu said over the weekend that officials are preparing to brief US President Donald Trump about options for attacking Iran again, according to Reuters.
- The final reading from the University of Michigan on Friday showed that the Consumer Sentiment Index was downwardly revised to 52.9 in December from a preliminary reading of 53.3. Economists had expected the index to be upwardly revised to 53.4.
- Cleveland Fed President Beth Hammack said on Sunday that monetary policy is in a good place to pause, and she will assess the effects of 75 basis points (bps) of rate cuts on the economy during the first quarter, per Bloomberg.
- Financial markets are pricing in only a 21.0% chance the Fed will cut interest rates at its next meeting in January, after it reduced them by a quarter-point at each of its last three meetings, according to the CME FedWatch tool.
Gold stays bullish and prepares to challenge its record high
Gold trades in positive territory on the day. According to the four-hour chart, the yellow metal maintains the bullish outlook as the price is well-supported above the key 100-period Exponential Moving Average. Furthermore, the Bollinger Bands widen and the 14-day Relative Strength Index (RSI) is located above the midline, keeping the bulls in check.
The immediate resistance level for XAU/USD emerges at an all-time high of $4,381. A clean break above this level could set Gold up toward the $4,400 psychological mark.
On the flip side, sustained trading below the December 20 low of $4,337 could invite fresh selling pressure and drag the price down to the lower limit of the Bollinger Band of $4,307, followed by the 100-day EMA of $4,253.
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.
Author
Lallalit Srijandorn
FXStreet
Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.
