Gold Price Forecast: XAU/USD edges lower near $2,400 on US Dollar rebounds
- Gold price extends the decline around $2,405 in Monday’s early Asian session.
- The US PPI unexpectedly accelerated in June to its highest rate since March 2023.
- Rising bets on Fed rate cuts might limit the precious metal’s downside.
Gold price (XAU/USD) trades in negative territory near $2,405 on Monday during the early Asian session. The hotter-than-expected Wholesale price inflation in the United States for June weighs on the precious metal. Traders await the Chinese Gross Domestic Product (GDP) for the second quarter (Q2), along with the US NY Empire State Manufacturing Index for July and the Federal Reserve's (Fed) Mary Daly speech, which is due later on Monday.
Data released by the Bureau of Labor Statistics on Friday showed that the US Producer Price Index (PPI) came in at 2.6% YoY in June from a revised up of 2.4% in the previous reading, beating expectations of 2.3%. On a monthly basis, the PPI rose 0.2% MoM in June, above the market consensus of 0.1%. Meanwhile, Producer Prices ex Food and Energy climbed more than expected on both a yearly and monthly basis.
Nonetheless, the downside of the yellow metal might be limited amid the expectation that the Fed would start its easing cycle sooner than expected in September. It’s worth noting that a lower interest rate generally increases the attractiveness of Gold, a non-interest-bearing investment. Financial markets are now pricing in nearly 80% odds for a 25 basis points (bps) cut in September, according to the CME Fedwatch Tool.
Furthermore, global political uncertainty and geopolitical tensions in the Middle East might boost the safe-haven flows, benefiting precious metals. On Saturday, former president Donald Trump was shot in the ear during his rally in Butler, Pennsylvania, in what the FBI said was an assassination attempt, per CNN.
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.