- Gold price gains momentum to a record high around $3,190 in Friday’s early Asian session.
- An escalation of the US-China trade underpins the Gold price.
- Pared-back Fed rate cut bets might help limit the XAU/USD’s losses.
The Gold price (XAU/USD) surges to near an all-time high around $3,190 during the early Asian session on Friday. The weakening of the US Dollar (USD) and escalating trade war between the United States (US) and China provide some support to the precious metal, a traditional safe haven asset.
Data released by the US Bureau of Labor Statistics (BLS) on Thursday revealed that US consumer prices unexpectedly fell in March, but inflation risks are tilted to the upside after US President Donald Trump doubled down on China tariffs. The US CPI inflation eased to 2.4% YoY in March from 2.8% in February. This reading came in below the market expectation of 2.6%.
The core CPI, which excludes volatile food and energy prices, increased 2.8% YoY in March, compared to a rise of 3.1% seen in February and came in below the consensus of 3.0%. On a monthly basis, the headline CPI declined 0.1%, while the core CPI rose 0.1%.
Trump said on Wednesday he would temporarily lower duties on dozens of countries. However, Trump also raised tariffs on China to 125%, effective immediately, after Beijing announced plans to retaliate with 84% duties. The worries over the global economy and the renewed trade tensions between the world’s two biggest economies keep investors in safe-haven assets, supporting the Gold price.
On the other hand, pared-back Federal Reserve (Fed) rate cut bets that can strengthen the Greenback and weigh on the USD-denominated commodity price. Traders are now expecting the Fed will resume cutting interest rates in June and probably reduce its policy rate by a full percentage point by the end of the year.
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.
