Gold Price Forecast: XAU/USD flat lines above $2,600 ahead of holiday trading week
- Gold price holds steady near $2,610 in Tuesday’s early Asian session.
- The stronger Greenback and high bond yields could drag the Gold price lower.
- Safe-haven flow and the world’s central banks demand might cap the downside for yellow metal.
Gold price (XAU/USD) trades flat around $2,610 during the early Asian session on Tuesday. Markets face a relatively quiet trading session ahead of the holiday trading week. The US Richmond Fed Manufacturing Index for December is due later on Tuesday.
The firmer US Dollar (USD) could weigh on the yellow metal as it makes commodities priced in the currency more expensive for most buyers. Meanwhile, the US Dollar Index (DXY), a measure of the USD's value relative to its most significant trading partners' currencies, edges higher to the 108.00 handle amid the cautious mood.
"The market continues to digest the results of the Federal Open Market Committee (FOMC) meeting last week. A shallower rate path for 2025 is now getting factored in, probably a pause in January, maybe March as well," noted Peter Grant, vice president and senior metals strategist at Zaner Metals.
On the other hand, safe-haven demand and buying by the world’s central banks could underpin the precious metal. According to the World Gold Council (WGC), central bank demand increased significantly, highlighting the metal's continued position as a safe-haven asset. Central banks have been net purchasers of gold for over 15 years.
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.
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