Gold Price Forecast: XAU/USD extends upside to near $4,500 on Venezuela turmoil

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Gold price (XAU/USD) climbs to near $4,500 during the early Asian trading hours on Wednesday. The precious metal rises by more than 1% in the day as geopolitical tensions and expectations of US rate cuts keep demand for gold high.

Gold price rises to around $4,500 in Wednesday’s early Asian session.
Venezuela turmoil boosts the safe-haven flows, supporting Gold price.
Markets anticipate at least two quarter-point Fed rate cuts.

The US carried out a large-scale military strike against Venezuela on Saturday and announced that Venezuelan President Nicolas Maduro and his wife had been captured and flown out of the country. Maduro on Monday pleaded not guilty to US charges in a narco-terrorism case against him. Uncertainty in the Venezuela crisis could underpin a traditional safe-haven asset such as Gold in the near term.

Most Federal Reserve (Fed) officials saw further interest-rate reductions as appropriate so long as inflation declines over time, though they remained divided over when and how far to cut, the Federal Open Market Committee (FOMC) Minutes showed.

Fed funds futures are still pricing around an 82% probability that interest rates will remain on hold at the US central bank's next meeting on January 27 to 28, according to the CME FedWatch tool. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

The attention will shift to the US December employment report on Friday. The US economy is expected to see 55,000 job additions in December, while the Unemployment Rate is projected to tick lower to 4.5% during the same period. If the reports show a stronger-than-expected outcome, this could support the US Dollar (USD) and undermine the USD-denominated commodity price in the near term.

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.