The Gold price (XAU/USD) continues to struggle to gain traction during the Asian session on Monday, maintaining its position above the $2,900 mark. The uncertainty surrounding US President Donald Trump's trade policies remains a critical factor supporting the precious metal's price. Additionally, traders are currently pricing in the possibility of three rate cuts of 25 basis points each by the Federal Reserve by the end of this year. These developments are contributing to Gold's sideways consolidative price move, as it displays resilience below the $2,900 threshold.
Central banks from emerging economies such as China, India, and Turkey are rapidly increasing their Gold reserves. This trend, along with the depreciating US Dollar and declining US Treasury yields, provides a tailwind for the non-yielding yellow metal. Gold's inverse correlation with the US Dollar and US Treasuries makes it a reliable asset for diversification during turbulent times, particularly as economic concerns stemming from tariff wars weigh heavily on the USD.
Fed Rate Cuts and Their Impact
The growing acceptance that the Federal Reserve will cut interest rates multiple times this year is influencing market dynamics significantly. As traders anticipate these rate cuts, they are increasingly turning to Gold as a safe-haven asset. The potential for reduced interest rates diminishes the yield on US Treasuries, which traditionally serves as a reserve and safe-haven asset alongside the US Dollar.
Gold's inverse relationship with these assets further supports its price stability amidst economic uncertainties. Despite the challenges in gaining upward momentum, Gold's ability to maintain its position above the $2,900 mark highlights its resilience. The XAU/USD pair may aim to challenge its all-time peak around the $2,956 region, touched earlier on February 24.
In light of these developments, central banks' actions have been noteworthy. According to data from the World Gold Council, central banks added 1,136 tonnes of Gold worth approximately $70 billion to their reserves in 2022 alone. This increased accumulation of Gold underscores its status as a preferred asset during periods of economic instability.
USD Weakness and Treasury Yield Decline
The US Dollar is languishing near a multi-month low, providing further support for the XAU/USD pair. This weakness is attributed to ongoing trade tensions and declining US Treasury yields. The recent downturn in US Treasury bond yields has triggered renewed pressure on USD bulls, keeping them on the defensive.
As the Dollar depreciates, Gold tends to rise, offering investors and central banks a reliable means of diversifying their assets. This dynamic becomes particularly relevant in times of economic uncertainty when traditional reserve assets face challenges. As a result, Gold retains its appeal as a hedge against currency devaluation and geopolitical risks.
The tariff war-led economic concerns continue to weigh heavily on the USD, further reinforcing Gold's position as an attractive investment option. As central banks from emerging markets bolster their Gold reserves, the metal's price stability remains supported by these strategic moves.
Central Banks' Strategic Moves
Central banks from emerging economies are playing a pivotal role in shaping Gold's market dynamics. In response to global economic uncertainties and currency fluctuations, these institutions are swiftly increasing their Gold reserves. This strategic decision reflects a growing recognition of Gold's value as a hedge against economic volatility.
China, India, and Turkey are among the prominent players actively augmenting their Gold holdings. This trend aligns with the broader strategy of diversifying reserves away from traditional assets such as the US Dollar and Treasuries. As these central banks accumulate more Gold, they contribute to sustaining its price stability and reinforcing its status as a global reserve asset.
The strategic accumulation of Gold by central banks highlights its role as a safe-haven asset amidst geopolitical tensions and economic uncertainties. This move not only supports the metal's price but also enhances its appeal as a reliable store of value for both institutional investors and individual market participants.