The gold market witnessed a modest upswing on Monday, driven by a slight weakening of the US Dollar. The US Bureau of Economic Analysis released data indicating a rise in the Personal Consumption Expenditures (PCE) Price Index, which climbed by 0.3% in January. Over the past year, it has increased by 2.5%. Meanwhile, the core PCE Price Index—excluding volatile food and energy prices—also grew by 0.3% last month and recorded a 2.6% increase on an annual basis. Despite these developments, US consumer spending experienced an unexpected decline of 0.2% last month, marking its first drop since March 2023 and the most significant decrease in nearly four years.
As a result of these economic indicators, the Gold price (XAU/USD) commenced the week on a positive trajectory, recovering from a low point reached last Friday, around the $2,833-$2,832 region. Analysts suggest that if the Gold price manages to surpass the $2,900 mark, it could approach the $2,934 intermediate hurdle and potentially reach a record high of approximately $2,956.
The relationship between Gold and the US Dollar plays a critical role in this dynamic. Priced in dollars (XAU/USD), Gold tends to appreciate when the US Dollar weakens. Additionally, lower interest rates are generally favorable for Gold, while higher borrowing costs can exert downward pressure on the yellow metal. Central banks, particularly from emerging economies like China, India, and Turkey, are significantly increasing their Gold reserves as part of their diversification strategies to bolster economic and currency strength. In 2022 alone, central banks added 1,136 tonnes of Gold to their reserves, valued at approximately $70 billion, according to the World Gold Council.
Gold's price movements also exhibit an inverse correlation with the US Dollar and US Treasuries, both of which are essential reserve and safe-haven assets. As geopolitical tensions, such as former US President Donald Trump's tariff plans and global trade conflicts, continue to affect market sentiment, they simultaneously support Gold prices while weighing on the US Dollar.
Meanwhile, expectations regarding Federal Reserve policies further influence the Gold market outlook. The Federal Reserve is anticipated to reduce interest rates by a quarter of a percentage point twice before the year's end. This prospect could prove beneficial for Gold prices. The CME Group's FedWatch Tool indicates that market participants are considering the possibility of interest rate cuts during the Federal Reserve's June policy meeting, with further reductions potentially occurring in September.