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Gold Price Forecast: XAU/USD holds below $2,450, eyes on geopolitical risks and key US economic data this week

  • Gold price trades on a softer note near $2,430 in Monday’s early Asian session. 
  • Safe-haven flows amid elevated geopolitical risks might support the yellow metal. 
  • Traders await key US economic data this week for fresh catalysts, including PPI, CPI and Retail Sales.

Gold price (XAU/USD) trades on a negative note around $2,430 during the early Asian session on Monday. The modest recovery of the US Dollar (USD) drags the yellow metal lower on the day. However, the downside might be limited amid the heightened geopolitical tensions in the Middle East.  

Tensions in the Middle East would maintain the XAU/USD bid, with reports showing an intensification of the war. On Sunday, Defence Minister Yoav Gallant informed US Defence Secretary Lloyd Austin that Iran's military preparations indicated the country is preparing for a large-scale strike on Israel, according to Axios writer Barak Ravid on X, citing a person familiar with the call. 

Heightened volatility and elevated geopolitical risks are likely to boost safe-haven flows, benefiting the precious metal. “In the medium term, the outlook for gold remains positive, with any dips likely to be short-lived due to underlying macroeconomic factors,” said Zain Vawda, market analyst at MarketPulse by OANDA. 

Investors are split on whether the US Federal Reserve (Fed) would be aggressive in its monetary policy by announcing a 50 basis point (bps) interest rate cut or a 25 bps cut. The key US economic data this week might offer some hints about economic conditions, with the release of the US Producer Price Index (PPI), Consumer Price Index (CPI) and Retail Sales. The stronger-than-expected data might delay or diminish the odds of deeper Fed rate cuts, which weigh on the Gold price.  

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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