Gold Price Forecast: XAU/USD buyers take a breather near $2,600, focus on Middle East geopolitical risks

Gold price posts modest losses around $2,620 in Monday's early Asian session.
US Fed rate cut and geopolitical risks boost the precious metal.
The positive view for US growth and stronger US economic data could weigh on the XAU/USD price.

Lallalit Srijandorn FXStreet

The Gold price (XAU/USD) trades in negative territory around $2,620 but remains near the all-time high on Monday during the early Asian session. An aggressive interest cut by the Federal Reserve (Fed) and rising geopolitical tension in the Middle East lift the Gold price, a traditional safe-haven asset.

The Federal Open Market Committee (FOMC) slashed its interest rates by a surprise 50 basis points (bps) last week following a two-day meeting and signaled that more cuts are likely before the end of 2024. A rate cut by the US Fed is likely to boost the appeal of the non-interest-bearing Gold price.

Additionally, fears of an escalation of tensions in the Middle East after Hezbollah vows retaliation for a pager attack provide some support to the yellow metal price. Hezbollah and Israel exchanged heavy fire on Sunday, as the Lebanese militant group launched missiles deep into northern Israeli territory after facing some of the most intense bombardment in almost a year of conflict, per CNN.

The upside of the precious metal might be capped by the Fed’s broadly positive outlook for US growth. The Fed forecasts that the US economy will expand about 2.0% per year until the end of 2027, suggesting a soft landing profile for the economy. This, in turn, might drag the safe-haven Gold lower.

Looking ahead, Gold traders will closely monitor the development surrounding the Middle East geopolitical risks. Furthermore, the flash reading of the US Purchasing Managers Index (PMI) will be released later on Monday. In case of the stronger-than-expected outcome, this could underpin the Greenback and exert some selling pressure on the USD-denominated Gold price.

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.

GBP/USD advances to three-month peak beyond 1.3600

GBP/USD extends its daily rally and trades at its highest level since mid-May above 1.3600. The US Treasury Department decision to double the sice of liquidity support buyback operations for longer-dated nominal coupon securitiez weighs heavily on the US Dollar and helps the pair push higher. Earlier in the day, the data from the UK showed that annual Consumer Price Index (CPI) inflation picked up to 2.9% in July, meeting estimates, while core CPI rose by 2.6% YoY in July versus 2.5% expected.

EUR/USD surges to 11-week high above 1.1650 after US Treasury announcement

EUR/USD gathers bullish momentum and trades at its highest level since early June above 1.1650 on Wednesday. The US Dollar stays under heavy bearish pressure after the US Treasury announced that it will increase the size of liquidity support buyback operations for longer-dated nominal coupon securities. Later in the day, investors will scrutinize FOMC Minutes for fresh clues on policy outlook.

Gold climbs above $4,500 as US Dollar, yields fall

Gold price rises to around $4,520 during the early Asian session on Thursday. The precious metal surges to the highest since early June amid the weakening US Dollar after the US Treasury Department stepped in to provide relief to bond markets.

Australia unemployment rate expected to hold at 4.4% in July

Australia will release the July monthly employment report on Thursday at 01:30 GMT. Ahead of the announcement, analysts anticipate a modest 15K increase in job creation, while the Unemployment Rate is expected to remain steady at 4.4%.

$20 billion offered, $2 billion taken: Why Treasury doubled its buyback cap

The US Treasury moved off its own calendar on Wednesday, and that is the part worth sitting with. At 12:32 GMT, the department said it would at least double the size of liquidity support buyback operations in the 10-year to 20-year and 20-year to 30-year sectors, lifting the maximum from $2 billion per operation to at least $4 billion, effective September 9 and running to November 4.

Why is Crude Oil priced for a reopening the ships haven't made?

Fourteen vessels crossed the Strait of Hormuz on Tuesday. Before the war, the count ran near 120 a day. In the sessions since the waterway was publicly declared open, Brent has drifted back to $87 and West Texas Intermediate (WTI) to $81, both a little lower again on Wednesday, with daily momentum on each unwound from the top of its range in late July to the low twenties now.