Gold declines to near $4,000 as inflation concerns reinforce higher-rate outlook

Gold price edges lower to near $4,015 in Tuesday’s early Asian session.
Fears of inflation have boosted expectations of higher interest rates.
Traders brace for the US ADP employment data on Wednesday ahead of the highly-anticipated NFP report.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) declines to around $4,015 during the early Asian session on Tuesday. The precious metal extends its downside as inflationary pressure raised expectations that central banks would keep interest rates higher for longer.

CNBC reported on Monday that the United States and Iran are set to hold fresh talks on Tuesday in Doha, Qatar, following a weekend of hostilities in the Middle East. However, uncertainty remain high and there was no response from Iran’s Ministry of Foreign Affairs.

“The market is attuned to Middle East headlines, (with) some uptick in tensions over the weekend and still adjusting to a more hawkish Fed tilt,” said Peter ‌Grant, vice president and senior metals strategist at Zaner Metals.

The US Federal Reserve (Fed) decided to hold interest rates steady at its June policy meeting, but policymakers expect a rate hike later this year amid growing concerns about inflation lodged above the US central bank’s 2% target. It’s worth noting that Gold is often used as a hedge against inflation but does not yield interest, making it less attractive when interest rates are high.

Traders await the US ADP employment data on Wednesday and the US Nonfarm Payrolls (NFP) report on Thursday for further ‌clues on the Fed’s monetary policy stance. If the employment data show a stronger-than-expected outcome, this could support the higher-for-longer Fed stance and weigh on the yellow metal. On the other hand, any signs of weakening in the US labor market could drag the US Dollar (USD) and underpin the USD-denominated commodity price in the near term.

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.

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.

AUD/USD weakens to multi-month lows; challenges 0.6800

AUD/USD has come under heightened downside pressure, briefly slipping back below the 0.6800 yardstick on Thursday. Indeed, the pair has revisited levels last seen in late January in response to the continuation of the bullish momentum favouring the Greenback, which remained propped up by rising bets over extra Fed tightening.

USD/JPY eases from near 160.00 amid looming intervention risks, BoJ hike bets

USD/JPY retreats slightly from an over two-month high as the recent surge back to the 160.00 psychological mark prompted verbal warnings from Japanese authorities and sparked fears of direct FX intervention. Moreover, data showed that Japan’s wholesale inflation picked up again in October, strengthening the case for a BoJ hike in December and lifting the Japanese Yen. However, a bullish US Dollar, bolstered by odds of a jumbo Fed rate hike in December, could cap the pair's downside.

Gold shifts the focus to $3,800 amid stronger US Dollar

Gold comes under heightened downside pressure, retreating for the third consecutive day and approaching the $3,800 region per troy ounce on Thursday. Increasing speculation of a 50-bps rate hike by the Fed in December continues to weigh on the precious metal amid further gains in US Treasury yields.

Dogecoin Price Forecast: DOGE tests three-year low as selling pressure deepens

Dogecoin (DOGE) trades lower around $0.0650 on Thursday, as bears tighten their grip. The path of least resistance remains downward not only for the largest meme coin by market capitalization but also for crypto majors Bitcoin (BTC), Ethereum (ETH) and Ripple (XRP). DOGE is down about 2.6% on the day, aligning with levels last seen in October 2023.

Nvidia shares crash as Jensen Huang resigns as CEO

Nvidia (NVDA) shares collapsed in Thursday's premarket after longtime CEO and co-founder Jensen Huang resigned as CEO in the face of board scrutiny over several affairs. Nvidia shares have shed 10% at the time of writing as the leading AI chipmaker chose chief financial officer (CFO) Colette Kress as interim CEO.

What the US CPI headline doesn’t tell you about inflation

Brent crude has fallen about a third since mid-October on hopes the Iran war is ending, but diesel, freight and fertiliser costs haven't followed. Those costs reach US consumer prices in stages through 2027 and could keep inflation high after gasoline gets cheaper.