- Gold price is trading flat around $2,455 in early Asian trading on Friday.
- US July retail sales beat expectations, rising 1.0% m/m; initial jobless claims fell 7K to 227K last week.
- Rising geopolitical risks in the Middle East could limit gold’s downside.
Gold (XAU/USD) price remains flat near $2,455 during the early Asian session on Friday. The yellow metal is swinging between gains and losses amid the US Dollar (USD) consolidation. Traders will focus on the University of Michigan’s preliminary consumer sentiment index for August, along with building permits and housing starts.
Following the release of encouraging employment-related data and strong retail sales, speculative interest in the world’s largest economy has eased, easing fears over a possible recession. However, traders still see the US Federal Reserve (Fed) starting to ease policy in September. According to the CME’s FedWatch tool, markets are now pricing in a nearly 80% chance of a rate cut in September and expect a 200 basis point (bps) reduction over the next 12 months, although that will depend on incoming data.
Data released by the US Census Bureau on Thursday showed that US retail sales rose 1.0% on a monthly basis in July, compared with a 0.2% decline in June. This figure beat the estimate for a 0.3% increase. Meanwhile, initial jobless claims for the week ending August 10 came in at 227K, better than the expectation of 235K and below the previous week’s 234K. The recent stronger employment data and upbeat retail sales have broadly strengthened the USD and weighed on the precious metal.
However, elevated geopolitical risks in the Middle East could provide some support to the price of gold, a traditional safe haven asset. Gaza’s health ministry says more than 40,000 Palestinians have been killed in Israeli strikes since October 7, with many more buried under rubble and threatened by disease, according to local news source Aljazeera.
Gold FAQs
Gold has played a pivotal role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. In order to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of the strength of the economy and the currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasury bonds, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
Gold prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, Gold prices tend to rise when interest rates fall, while rising money prices often weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep Gold prices in check, while a weaker Dollar is likely to push Gold prices higher.
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.
