Gold is on the rise as bulls push the price higher following a temporary consolidation. However, the yellow metal initially weakened on Tuesday after reports that Israel would show restraint in any potential strikes against Iran. Additionally, Gold is facing pressure from reduced market bets on aggressive interest rate cuts by the Federal Reserve. Despite these headwinds, Gold (XAU/USD) managed to recover into the $2,650s on Tuesday after easing tensions in the Middle East.
A key factor driving the US Dollar higher and weighing on Gold price is the reduction in market bets regarding the Fed slashing interest rates. US survey data also indicates that inflation expectations remain elevated, with the latest Michigan Consumer Sentiment Survey showing a significant increase in long-term expectations. Concerns about China, the largest consumer of Gold in the world, also contribute to the downward pressure on Gold, especially after Beijing provided little clarity on its fiscal stimulus program.
On the positive side, Gold is finding support from continued robust demand from global central banks. Central banks have been hoarding Gold as a safe-haven asset and hedge against currency devaluation, despite a slight decline in central bank buying in 2024. Expectations are that central bank demand for Gold will remain strong, according to remarks made by representatives from the Central Bank of Mongolia, Czech Republic, and Mexico at a recent panel discussion.
Market movements for Gold on the calendar are expected to be influenced more by verbal than data-driven factors. Speeches from various Fed officials could impact the price of Gold by influencing market expectations around interest rates. Data-wise, The NY Empire State Manufacturing Index is a key metric of the day for the US Dollar and could have implications for Gold price as well.
From a technical analysis perspective, Gold is currently testing resistance at $2,670 after bouncing and resuming its uptrend following a correction in mid-October. A clear break above $2,673 could confirm bullish momentum and lead to a push towards the $2,685 all-time high. The overall trend for Gold remains upward in the short, medium, and long-term, with a break below $2,600 needed to reverse the current uptrend and turn the outlook bearish.
Gold has a long history of being used as a safe-haven asset and medium of exchange dating back centuries. Central banks hold significant Gold reserves to support their currencies during volatile times and to improve their perceived economic strength. The precious metal has an inverse correlation with the US Dollar and US Treasuries, and its price movements are influenced by various factors, including geopolitical instability, recessions, interest rates, and the strength of the US Dollar.
In conclusion, Gold continues to be a highly sought-after asset for both investors and central banks seeking safety and security during times of uncertainty. Despite facing some headwinds, the precious metal maintains its appeal as a reliable store of value and hedge against inflation and currency devaluation. With continued demand from central banks and ongoing global economic uncertainties, Gold is likely to remain a key asset for investors looking to diversify their portfolios and protect against market volatility.
