Gold Price Forecast: XAU/USD tumbles below $5,050, China’s buying interest seen limiting downside
- Gold price falls to around $5,030 in Tuesday’s Asian session.
- China's central bank buys gold for 15th consecutive month.
- Traders brace for the delayed US employment report for January, which is due on Wednesday.
Gold price (XAU/USD) slumps to near $5,030 during the Asian session on Tuesday. The precious metals edges lower after rising over the previous two days, as traders returned to equities on improved risk sentiment. Market participants might prefer to wait on the sidelines ahead of the key US economic data later this week, including the delayed US employment report for January.
The S&P 500 rose on Monday, boosted by technology stocks, while the Dow Jones Industrial Average reached its all-time high following a volatile week. Furthermore, easing concerns over the United States (US)-Iran conflicts could undermine a traditional asset such as Gold.
The US and Iran pledged to continue indirect talks following what they described as positive discussions. Iran’s President Masoud Pezeshkian described the Friday nuclear talks with the US as “a step forward,” even as he pushed back against any attempts at intimidation.
The People's Bank of China (PBOC) extended its gold buying reserve for a 15th consecutive month in January. The Chinese central bank’s gold holdings rose to 74.19 million fine troy ounces by the end of January, up from 74.15 million the previous month. Rising demand from China, the world's largest gold consumer, could boost the Gold price in the near term.
US Treasury Secretary Scott Bessent on Thursday refused to rule out the possibility of a criminal investigation of Kevin Warsh, President Donald Trump’s nominee for US Federal Reserve (Fed) chair, if Warsh ends up refusing to lower the interest rates. Renewed concerns over the Fed’s independence continue to drag the Greenback lower and provide some support to the USD-denominated commodity price.
Risk sentiment FAQs
In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.
Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.
The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.
The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.
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.
