The price of gold (XAU/USD) is trading flat near $4,205 during early Asian trading hours on Friday. Rising US Treasury yields and upbeat US jobs data are capping the precious metal’s upside. Traders may prefer to wait on the sidelines before the release of key US inflation data. The United States postponed the personal consumption expenditures (PCE) price index report for September, which will be published later on Friday.
Higher yields and strong US jobs data could provide some support to the US dollar broadly and influence commodity prices denominated in US dollars. Data released by the US Department of Labor on Tuesday showed that US initial jobless claims for the week ending November 29 fell to 191,000, compared to 218,000 the previous week. This number was lower than the market consensus of 220,000.
Traders will closely monitor US personal consumption expenditures inflation data on Friday for further clues on the Federal Reserve’s policy outlook ahead of its December meeting. Any signs of rising inflation rates in the US economy could undermine the price of gold in the near term.
Meanwhile, the Fed is widely expected to cut its key interest rate by 25 basis points at its December policy meeting next week. This, in turn, could support the yellow metal. Lower interest rates can reduce the opportunity cost of holding gold, supporting the non-yielding precious metal.
Higher geopolitical uncertainty and risks could boost safe haven flows, benefiting the gold price. US President Donald Trump said on Wednesday that the path forward for peace talks in Ukraine is unclear. These statements came after Trump described the talks as “reasonably good” between Russian President Vladimir Putin and American envoys. Ukrainian President Volodymyr Zelensky said that his team is preparing for meetings in the United States and that the dialogue with Trump’s representatives will continue.
Frequently asked questions about gold
Gold has played a major role in human history as it has been widely used as a store of value and a medium of exchange. Currently, apart from its luster and use in jewellery, the precious metal is widely viewed as a safe haven asset, meaning it is a good investment during turbulent times. Gold is also widely viewed as a hedge against inflation and currency depreciation because it is not dependent on any specific issuer or government.
Central banks are the largest holders of gold. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and purchase gold to improve the perceived strength of the economy and the currency. High gold reserves can be a source of confidence for a country’s solvency. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse relationship with the US dollar and US Treasuries, which are major reserve assets and safe havens. When the value of the dollar declines, 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 rise in the stock market tends to weaken the price of gold, while a sell-off in riskier markets tends to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession could cause the price of gold to rise rapidly due to its safe-haven status. As a lower-yielding asset, gold tends to rise as interest rates fall, while a higher cost of money usually negatively impacts the yellow metal. However, most of the moves depend on how the US Dollar (USD) behaves as the asset is priced in Dollars (XAU/USD). A stronger dollar tends to keep the price of gold in check, while a weaker dollar is likely to push gold prices higher.
