Gold prices surged to $2,190 as the US dollar weakened, driven by anticipation surrounding the upcoming US core PCE inflation data. The Federal Reserve (Fed) remains optimistic about easing inflation despite recent spikes, with expectations of three interest rate cuts this year.

Investors eagerly await fresh insights into the inflation outlook, particularly from the core PCE data for February, scheduled for release later this week. A potential decline in inflationary pressures could bolster gold prices, signaling reduced prospects for prolonged high interest rates. However, persistently high inflation could dampen gold’s appeal, prompting investors to seek alternative assets like bonds offering higher yields.

Meanwhile, the US Dollar Index dipped from a one-month high of 104.50 to 104.10, amplifying gold’s ascent. Fed officials, including Governor Lisa Cook and Chicago Fed Bank President Austan Goolsbee, remain cautiously optimistic about inflation, despite uncertainties surrounding housing inflation.

Market sentiment is influenced by the Fed’s stance, with expectations of interest rate cuts in June strengthening. This anticipation has mitigated downward pressure on gold prices, limiting their decline.

Looking ahead, investors will closely monitor the core PCE price index data for February, with expectations of a steady annual growth rate of 2.8%. Technical analysis indicates bullish momentum for gold prices, supported by rebounding momentum oscillators and a positive trend in the 20-day Exponential Moving Average.

Resistance for gold prices is anticipated near the 161.8% Fibonacci extension level at $2,250, while support is expected near the December 4 high of $2,144.48. Overall, market dynamics suggest a favorable outlook for gold prices in the near term.


Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

By Admin

Related Post