Gold Price Forecast: XAU/USD declines to near $5,050, focus shifts to US jobs data

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Gold price (XAU/USD) falls to near $5,045 during the early Asian session on Wednesday. Traders assess whether prices have found a floor following a historic sell-off.

Gold price tumbles to around $5,045 in Wednesday’s early Asian session.
An improvement in risk appetite weighs on the Gold price, but safe-haven demand might cap its downside.
Traders await the delayed US employment data for January, which is due later on Wednesday.

Gold price (XAU/USD) falls to near $5,045 during the early Asian session on Wednesday. Traders assess whether prices have found a floor following a historic sell-off. The delayed US employment report for January, which was pushed back due to the recently ended four-day government shutdown, will take center stage later on Wednesday.

An improvement in risk appetite and renewed US Dollar (USD) demand could weigh on the precious metal in the near term. However, the potential downside for the yellow metal might be limited amid ongoing tensions between the United States (US) and Iran, which support a traditional asset such as Gold.

US President Donald Trump continued to threaten Iran with possible military attacks if Tehran does not accede to his demands on issues ranging from nuclear enrichment to ballistic missiles. The remarks came as Iran’s security chief, Ali Larijani, met with the sultan of Oman, Haitham bin Tariq Al Said, to discuss the results of talks between US and Iranian officials last week.

“The recent bout of volatility has called into question the value of gold as a hedge against geopolitical and market swings,” said Mark Haefele, global wealth management chief investment officer at UBS Group AG. “We believe such worries are overdone, and that the rally in gold will resume.”

Traders might adopt a wait-and-see stance ahead of US employment and inflation reports later this week, which will offer clues on the path of Federal Reserve (Fed) policy. The jobs report, which will be released on Wednesday, is expected to show Nonfarm Payrolls (NFP) rose 70,000 in January, while the unemployment rate is seen steady at 4.4% during the same period.

The US Consumer Price Index (CPI) inflation data will be published on Friday. Any signs of weakening in the US labor market or softer inflation could drag the Greenback lower and lift the USD-denominated commodity price.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.