Gold prices surged to $2,190 as the US dollar dipped amid anticipation of US core PCE inflation data. Despite recent reports of high inflation, the Federal Reserve remains optimistic about easing price pressures and is considering three interest-rate cuts this year.
Investors are closely monitoring inflation indicators to gauge when the Fed might reduce interest rates. Positive signs of decreasing inflation could support gold prices by reducing expectations for prolonged high interest rates. However, persistent inflation could dampen gold prices as investors turn to interest-bearing assets like bonds, pushing bond yields higher. Currently, 10-year US Treasury yields are down to 4.24% as investors anticipate rate cuts starting in June.
Gold’s rise coincides with a correction in the US dollar, driven by the Fed’s confidence in easing inflation despite recent spikes. Fed Governor Lisa Cook noted that although housing-services inflation remains high, new rental lease rates suggest a downward trend. Chicago Fed Bank President Austan Goolsbee echoed confidence in inflation returning to the 2% target.
Market projections suggest a high likelihood of rate cuts starting in June, reinforcing gold’s appeal. This week, investors await the core PCE price index data for February to gauge the timing of potential rate cuts. The monthly inflation rate is expected to rise by 0.3%, slower than January’s 0.4% increase.
Gold prices have rebounded to $2,190 as momentum indicators recover. The near-term outlook remains bullish, supported by the upward slope of the 20-day Exponential Moving Average. Resistance is anticipated near the $2,250 level, while support is expected at the previous high of $2,144.48.
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.
