Gold price ( XAU/USD) climbs to near $4,775 during the early Asian trading hours on Wednesday. The precious metal extends the rally and is poised for another record high amid a time of political and economic uncertainty. The speech by US President Donald Trump at the World Economic Forum in Davos, Switzerland, will be in the spotlight later on Wednesday.
Traders continue to pile into safe-haven assets amid tensions between the US and Europe over Greenland. US President Donald Trump over the weekend threatened to impose tariffs on eight European nations that oppose his plans to take control of Greenland.
The BBC reported on Wednesday that the European Parliament is planning to suspend approval of the US trade deal agreed in July, according to sources close to its international trade committee. The suspension is scheduled to be announced in Strasbourg, France, on Wednesday. Escalation in tensions between the US and Europe could boost traditional safe-haven assets such as Gold in the near term.
Traders push back their bets that the US Federal Reserve (Fed) would cut interest rates later this month after signs of an improving US labour market. Traders are now pricing in the next rate reduction coming in June, the month after Fed Chair Jerome Powell’s tenure ends, with another easing to follow in the fourth quarter. The view that the US central bank can keep interest rates higher for longer generally underpins the US Dollar (USD) and weighs on the non-interest-bearing assets like Gold.
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.
