Gold Price Forecast: XAU/USD edges lower below $4,250 as demand eases after the festive season

Gold price drifts lower to near $4,245 in Monday’s early Asian session.
Analysts believed the overstretched rally and easing physical demand would weigh on the Gold price.
Rising US-China trade tensions, uncertainty and geopolitical risks could boost the safe-haven flows.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) trades in negative territory around $4,245 during the early Asian session on Monday. The precious metal edges lower as the recent record-breaking rally seems overstretched and physical demand eases after the festive rush. Traders brace for China’s Q3 Gross Domestic Product (GDP) data later on Monday, along with Industrial Production and Retail Sales reports for September.

The yellow metal ended last week on a positive note, bolstered by festive demand in India and strong ETF buying. However, some profit-taking or consolidation cannot be ruled out in the near term as ongoing fundamentals are already priced in and physical demand wanes.

"Gold prices are likely to see some corrections/ consolidation as ongoing fundamentals are already priced in and physical demand wanes post mid-week," said Pranav Mer, Vice President, EBG - Commodity & Currency Research, JM Financial Services Ltd.

On the other hand, the escalating US-China trade tensions, worries about uncertainty and global geopolitical risks could boost the safe-haven assets like Gold. US trade officials condemned China's expansion of export controls on rare earths, while Beijing accused Washington of causing global panic over supply chain disruption. “Trade uncertainty is one driver helping to launch gold prices to all-time highs,” said Sam Stovall, chief investment strategist of CFRA Research in New York.

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.

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