Gold price fell to near $2,600 after the US Dollar recovered losses and turned positive. The US Dollar gained as the Federal Reserve signals fewer interest rate cuts for 2025. Market experts project the Fed to resume the policy-easing cycle in March. The precious metal faces selling pressure as the US Dollar Index returned above 108.00. Lower yields on interest-bearing assets generally weigh on non-yielding assets like Gold. However, the relationship appeared positive on Monday.
The outlook for the Gold price is uncertain as the Federal Reserve is expected to cut interest rates fewer times in 2025. Fed policymakers have guided for a smaller number of rate cuts for the next year as they are optimistic about US economic growth. Moreover, a slowdown in the disinflation trend and better labor market conditions have also contributed to the need for a gradual policy-easing cycle. According to analysts at Goldman Sachs, the Fed is expected to deliver its next interest rate cut in March, with two more cuts anticipated in June and September.
Gold has a long history in human civilization as a store of value and a medium of exchange. In addition to its use in jewelry, the precious metal is considered a safe-haven asset, making it a good investment during turbulent times. Gold is also seen as a hedge against inflation and depreciating currencies as it is not reliant on any specific issuer or government. Central banks are the biggest Gold holders as they look to diversify their reserves and buy Gold to enhance the perceived strength of their economies and currencies. Central banks from 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 Treasuries, both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, allowing investors and central banks to diversify their assets during turbulent times. Gold is also inversely correlated with risk assets, with a rally in the stock market weakening Gold prices, while sell-offs in riskier markets favor the precious metal. The price of Gold can be influenced by a variety of factors, including geopolitical instability and fears of a deep recession, which can make the Gold price escalate due to its safe-haven status.
As a yield-less asset, Gold tends to rise with lower interest rates, while higher costs of money typically weigh down on the yellow metal. However, most movements depend on the behavior of the US Dollar, as Gold is priced in dollars. A strong Dollar tends to control Gold prices, while a weaker Dollar is likely to push Gold prices up. Gold price could strengthen after a break above the December high of $2,726.00. Alternatively, bears could take control if the asset breaks below the November low around $2,537.00. The Relative Strength Index indicates indecisiveness among market participants, with the Gold price trading in a Symmetrical Triangle chart formation on a daily timeframe.
