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Gold Price Forecast: XAU/USD drifts higher above $2,850 amid the cautious mood

  • Gold price edges higher to $2,870 in Monday’s early Asian session. 
  • The uncertainty and global tensions could boost the safe-haven flows, benefiting the Gold price. 
  • US PCE inflation for January came in with the expectation. 

Gold price (XAU/USD) attracts some buyers to around $2,870 during the early Asian session on Monday. The uncertainty and ongoing Russia and Ukraine conflicts continue to underpin the precious metal. Traders will keep an eye on the US February ISM Manufacturing Purchasing Managers Index (PMI), which is due later on Monday. 

According to the state RIA news agency, an oil refinery in the Russian city of Ufa has caught fire. The regional branch of Russia's emergency ministry reported that residents in nearby areas face no danger from the blaze. However, the cause of the fire is yet to be determined.

Over the weekend, US President Donald Trump criticized Ukrainian President Volodymyr Zelenskyy for being "disrespectful" and canceled the signing of a minerals deal that would have brought Ukraine closer to resolving its conflict with Russia. Investors will closely monitor the developments surrounding Russia's headlines. Any signs of escalating tensions could boost the Gold price, a traditional safe-haven asset. 

On the other hand, the renewed US Dollar (USD) demand might cap the upside for the yellow metal. US inflation data came in line with expectations, suggesting the US Federal Reserve (Fed) might adopt a cautious stance on further rate cuts. 

The US Personal Consumption Expenditures (PCE) Price Index climbed 2.5% YoY in January, compared to 2.6% in December, the US Bureau of Economic Analysis reported on Friday. Meanwhile, the core PCE Price Index, which excludes volatile food and energy prices, climbed 2.6% on a yearly basis in January, down from 2.9% in December. Both figures came in line with market expectations.

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

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.

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