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Global Market Movers: Comex Gold price draws support from firming Fed rate cut bets, weaker USD

Mixed US macro data released on Wednesday reaffirmed expectations that the Federal Reserve will start cutting interest rates later this year, dragging the US Treasury bond yields lower and benefiting the non-yielding Gold price.
The Automatic Data Processing (ADP) reported that private sector employment in the US rose by 152K in May as compared to 173K anticipated and the previous month's downwardly revised reading of 188K (192K reported originally).
The Institute for Supply Management's (ISM) Services PMI rose to 53.8 in May, registering its highest level since August and surpassing consensus estimates of 50.8, while the Prices Paid sub-component edged lower to 58.1 from 59.2.
This, along with the softer US Personal Consumption Expenditures (PCE) Price Index on Friday, pointed to easing inflationary pressures and dragged the US Treasury bond yields lower, offering some support to the yellow metal.
The benchmark 10-year US Treasury yield fell to a two-month low, at 4.28%, and the yield on the rate-sensitive 2-year US government bond slipped to 4.731% amid speculations that the official job data will fall short of expectations.
The US Dollar did react positively to the data, though a further decline in the US Treasury bond yields offered support to the yellow metal and lifted it to a fresh weekly peak during the Asian session on Thursday.
Traders now look forward to the release of the Weekly Initial Jobless Claims data from the US for some impetus, though the focus will remain glued to the US monthly employment details, or the Nonfarm Payrolls (NFP) on Friday.

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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