Gold Price Forecast: XAU/USD holds below $3,250 on modest US Dollar strength
- Gold price drifts lower to near $3,230 in Tuesday’s early Asian session.
- The modest US Dollar recovery weighs on the yellow metal.
- Moody’s announced its downgrade of the US credit rating to Aa1, which might help limit the Gold’s losses.
The Gold price (XAU/USD) edges lower to around $3,230 during the early Asian session on Tuesday, pressured by a modest US Dollar (USD) rebound. However, the concerns over the US economic health after Moody's downgrades the US national credit rating might cap its downside.
The Greenback recovers on Tuesday, capping the upside for the USD-denominated commodity price. Nonetheless, the economic uncertainties could boost the safe-haven flows. Moody's cut the US rating to "Aa1" from "Aaa" on Friday, citing rising debt and interest "that are significantly higher than similarly rated sovereigns”. The economic uncertainties provide some support to the safe asset like Gold.
"Overall, over the next few months, I think gold is a good safe bet considering the downgrade on the United States. It's still to me a buy-and-hold market," said Bob Haberkorn, senior market strategist at RJO Futures.
Financial markets were also shaken when US Treasury Secretary Scott Bessent said on Sunday that US President Donald Trump would slap tariffs at the rate he threatened on April 2 if trade partners do not engage in "good faith."
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.