- Gold continues to push higher, sets new all-time-high.
- The US Dollar comes under renewed selling pressure after employment-related data.
- XAU/USD remains on track to end the seventh consecutive trading day in positive territory.
Gold extended its uptrend in the second half of the day on Wednesday and touched a new record-high above $3,560. At the time of press, XAU/USD was trading near $3,560, rising 0.85% on a daily basis. For the week, Gold is already up more than 3%.
Gold benefits from renewed USD weakness
Gold capitalized on safe-haven flows on Tuesday and gained more than 1.5%. The intense selloff seen in global bond markets, alongside the bearish action in major equity indexes, caused investors to seek refuge.
Although bond markets are relatively stable on Wednesday, Gold (XAU/USD) preserves its bullish momentum as the US Dollar (USD) stays under selling pressure.
The data published by the Bureau of Labor Statistics showed that Job Openings declined to 7.18 million in July from 7.35 million in June (revised from 7.43 million). This reading came in worse than the market expectation of 7.4 million and revived concerns over worsening conditions in the US labor market ahead of Friday’s highly-anticipated employment report.
Reflecting the renewed USD weakness, the USD index was last seen losing 0.25% on the day.
In a report published earlier in the day, OCBC’s FX analysts Frances Cheung and Christopher Wong explained that prospects of the Federal Reserve cutting rates, risk of geopolitical tensions persisting for longer and chatters of central banks purchasing Gold were some of the factors driving the prices higher.
“We still continue to watch the price action – if it manages to close above 3500 on weekly and monthly frequency, next resistances are at $3,600, $3,750, and $3,890 levels. Supports are at $3,390 (21-day Moving Average), $3,360 (50-day Moving Average),” they added.
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.
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