- Gold prices are posting modest gains around $2,450 in the Asian session on Thursday.
- US CPI rose as expected in July.
- Any signs of rising geopolitical tensions could boost safe-haven assets such as gold.
Gold (XAU/USD) price surges to nearly $2,450, snapping the two-day losing streak during the Asian session on Thursday. The weakness in the US Dollar (USD) provides some support to the precious metal on the day. Investors will take further cues from the US Retail Sales, Weekly Initial Jobless Claims, Philly Fed Manufacturing Index and Industrial Production, which are due out later on Thursday.
Data released by the Labor Department on Wednesday showed that inflation in the US rose as expected in July. The headline Consumer Price Index (CPI) rose 0.2% month-on-month in July, bringing the annual inflation rate to 2.9%. Meanwhile, the core CPI, excluding food and energy, came in at 0.2% month-on-month in July and an annual rate of 3.2%, in line with consensus.
“Expectations have now turned in favor of just a 25 basis point cut, so that could be taking some of the momentum out of the gold market,” said Phillip Streible, chief market strategist at Blue Line Futures. Markets are now pricing in a nearly 41% chance of a 50 basis point (bps) rate cut by the Fed in September, up from 50% before the release of the U.S. CPI data, according to the CME FedWatch tool.
Federal Reserve officials have indicated a willingness to ease policy, though they have been careful not to commit to a specific timetable and pace of rate cuts. Atlanta Fed President Raphael Bostic said Tuesday he wanted to see more evidence before supporting lower interest rates.
On the other hand, ongoing geopolitical tensions and economic uncertainty could boost safe-haven flows, benefiting the yellow metal. Iran has dismissed calls from the UK and other Western nations to refrain from retaliating against Israel following the assassination of Hamas leader Ismail Haniyeh in Tehran last month, according to the BBC.
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.
