Gold price rallies sharply on Thursday and clears the previous record high of $2,954 despite high US Treasury bond yields and a strong US Dollar. At the time of writing, the XAU/USD clears the $2,960 mark, and reached an all time-high of $2,971 a troy ounce.
Earlier, the US Bureau of Labor Statistics (BLS) revealed that prices paid by producers, maintained the “status quo.” PPI in February expanded by 3.2% YoY, below forecasts of 3.3% and down from January 3.7%. Core PPI rose by 3.4% YoY for the same period, beneath estimates of 3.5%. At the same time Initial Jobless Claims for the week ending March 8 dipped from 222K to 220K, below forecasts of 225K.
Gold’s last leg-up lack the catalyst that drove prices towards $2,971. Nevertheless, headlines from Russia, suggests that a ceasefire between Russia and Ukraine is not as close as expected, as Russia’s top aide said that the US proposal gives “nothing” to Russia.
Gold’s price reaction
Gold price climbed past the previous high of $2,954, exacerbating a spike towards the record high of $2,971. Due to price action, XAU/USD is poised to test the $3,000 mark soon. The Relative Strength Index (RSI) remains bullish with enough room to spare before turning overbought.
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.
