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Forex Today: Gold renews record-high above $2,700 to start new week

Here is what you need to know on Monday, October 21:

After rising nearly 2.5% in the previous week, Gold (XAU/USD) stretched higher during the Asian trading hours on Monday and touched a new record-high above $2,730 before retreating slightly. The economic calendar will not offer any high-impact macroeconomic data releases on Monday. In the American session, several Federal Reserve (Fed) policymakers will be delivering speeches.

US Dollar PRICE Last 7 days

The table below shows the percentage change of US Dollar (USD) against listed major currencies last 7 days. US Dollar was the strongest against the Swiss Franc.

 USDEURGBPJPYCADAUDNZDCHF
USD 0.79%0.29%0.34%0.36%0.96%0.85%1.01%
EUR-0.79% -0.56%-0.54%-0.34%0.20%-0.03%0.13%
GBP-0.29%0.56% 0.02%0.09%0.79%0.55%0.67%
JPY-0.34%0.54%-0.02% 0.00%0.63%0.55%0.65%
CAD-0.36%0.34%-0.09%-0.01% 0.54%0.51%0.48%
AUD-0.96%-0.20%-0.79%-0.63%-0.54% -0.10%0.02%
NZD-0.85%0.03%-0.55%-0.55%-0.51%0.10% 0.10%
CHF-1.01%-0.13%-0.67%-0.65%-0.48%-0.02%-0.10% 

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

Growing prospects for a globally low interest rate environment and heightened geopolitical tensions fuelled Gold's rally in the previous week. Additionally, easing concerns over an economic downturn in China helped XAU/USD to gather further strength. The People's Bank of China (PBoC) announced on Monday that it cut the one-year Loan Prime Rate (LPR) by 25 basis points (bps) from 3.35% to 3.10%. Markets were forecasting the PBoC to lower the one-year LPR by 20 bps to 3.15%. Additionally, the Chinese central bank cut the five-year LPR from 3.85% to 3.60%.

The US Dollar (USD) Index staged a correction heading into the weekend and lost 0.3% on Friday, snapping an eight-day winning streak. The index stays in a consolidation phase at around 103.50 in the European morning on Monday. Meanwhile, US stock index futures trade virtually unchanged on the day.

EUR/USD recovered modestly on Friday but registered third consecutive weekly losses. The pair struggles to hold its ground early Monday and trades marginally lower on the day near 1.0850.

Reserve Bank of Australia (RBA) Deputy Governor Hauser said on Monday that they remain data-dependent, adding that the monetary policy is ready to respond in either direction. AUD/USD stays under modest bearish pressure early Monday and trades in negative territory below 0.6700.

After losing nearly 0.5% on Friday, USD/JPY started the week on the back foot and declined toward 149.00. With the USD holding its ground against its peers, however, the pair reversed its direction and was last seen trading marginally higher on the day above 149.50.

GBP/USD closed in positive territory on Thursday and Friday, erasing a large portion of its weekly losses. The pair holds steady above 1.3000 in the European morning on Monday.

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.

(This story was corrected on October 21 at 09:20 GMT to say the market expectation was for the People's Bank of China (PBoC) to lower the one-year Loan Prime Rate (LPR) by 20 basis points (bps), not 10).

Author

Eren Sengezer

As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.

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