Gold Price Forecast: XAU/USD edges higher above $2,650 as traders brace for Chinese PMI data

Gold price drifts higher to $2,665 in Monday’s early Asian session.
Escalating geopolitical tensions in the Middle East and Fed rate cuts support the Gold price.
Investors await the Chinese PMI, which is due on Monday.

Gold price (XAU/USD) recovers to near $2,665 during the early Asian session on Monday. The geopolitical risks and firmer expectation of another oversized interest rate cut by the Federal Reserve (Fed) in November lift the precious metal.

Israel continues to launch airstrikes on Hezbollah targets in Lebanon, killing more than 100 people and wounding over 350 others Sunday, per CNN. Israel’s assassination of Hezbollah leader Hassan Nasrallah has fuelled tensions in the Middle East and escalated the conflict along the border with Lebanon, which might boost the safe-have flows, benefiting the Gold price.

Data released by the US Bureau of Economic Analysis (BEA) on Friday showed the headline Personal Consumption Expenditures (PCE) Price Index rose by 2.2% year-over-year in August, compared to 2.5% in July, softer than the expectations of 2.3%. Meanwhile, the core PCE jumped 2.7% over the same period, matching market estimations. On a monthly basis, the PCE Price Index increased by 0.1%, aligning with analysts' predictions.

The PCE data provided the latest sign that price pressures are easing in the US and triggered the expectation that the Fed will further cut the interest rate this year. A rate cut by the US Fed is likely to boost the appeal of the non-interest-bearing Gold price.

Gold traders will monitor the Chinese Purchasing Managers Index (PMI) for fresh impetus. The NBS Manufacturing PMI is expected to improve to 49.5 in September from 49.1, while the Services PMI is estimated to rise to 50.4 in September from 50.3 in the previous reading. The weaker-than-expected data might weigh on the yellow metal as China's largest gold importer.

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.

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