- The price of gold moves down about $ 3,265 in the first measures of the Asian session on Monday.
- The commercial agreement between the US and China decreased the appetite of investors for gold.
- Safe refuge flows and optimism for a fed rates cut could limit gold fall.
The price of gold (Xau/USD) extends the fall to around $ 3,265 during the first part of the Asian session on Monday. The precious metal collapses to about a minimum of a month after a commercial agreement between the United States (USA) and China promoted appetite for risk. Investors expect Fed statements later on Monday to obtain a new impulse.
A commercial agreement reached between the US and China last week on how to accelerate rare earth shipments to the US was positively seen by markets. This, in turn, decreased the attractiveness of gold as a safe refuge asset. In addition, the high fire agreement between Iran and Israel last week contributes to the fall of the yellow metal.
“The deceleration in the geopolitics has offered an opportunity for investors to begin to take profits due to the future perspectives of some type of kinetic war with China and the developments in the Middle East,” said Daniel Pavilonis, senior market strategist in Rjo Futures.
On the other hand, any renewed geopolitical tension or commercial uncertainty caused by US President Donald Trump could boost the purchase by central banks and increase the demand for precious metal, a traditional asset of safe refuge.
The increase in optimism for a federal reserve rates (FED) could also raise gold, which does not accrue interest. The operators increase the bets that the US Central Bank will cut the rates more times this year and possibly earlier than expected, since US data published on Friday showed an unexpected fall in consumer spending.
FAQS GOLD
Gold has played a fundamental role in the history of mankind, since it has been widely used as a deposit of value and a half of exchange. At present, apart from its brightness and use for jewelry, precious metal is considered an active refuge, which means that it is considered a good investment in turbulent times. Gold is also considered a coverage against inflation and depreciation of currencies, since it does not depend on any specific issuer or government.
Central banks are the greatest gold holders. In their objective of supporting their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of strength of the economy and currency. High gold reserves can be a source of trust for the solvency of a country. Central banks added 1,136 tons of gold worth 70,000 million to their reservations in 2022, according to data from the World Gold Council. It is the largest annual purchase since there are records. The central banks of emerging economies such as China, India and Türkiye are rapidly increasing their gold reserves.
Gold has a reverse correlation with the US dollar and US Treasury bonds, which are the main reserve and shelter assets. When the dollar depreciates, the price of gold tends to rise, which allows investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rebound in the stock market tends to weaken the price of gold, while mass sales in higher risk markets tend to favor precious metal.
The price of gold can move due to a wide range of factors. Geopolitical instability or fear of a deep recession can cause the price of gold to rise rapidly due to its condition of active refuge. As an asset without yield, the price of gold tends to rise when interest rates lower, while the money increases to the yellow metal. Even so, most movements depend on how the US dollar (USD) behaves, since the asset is quoted in dollars (Xau/USD). A strong dollar tends to keep the price of gold controlled, while a weakest dollar probably thrusts gold prices.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
