Key Scenarios For Gold As Global Uncertainty Returns

Gold has been an important metal around the world for centuries. Its special characteristics have made it become a reserve ‘currency’. Indeed, the metal is owned by most central banks, with the Fed being the biggest holder. The total gold owned by US treasury is worth more than $11 trillion. Just recently, it was announced that Venezuela had more than 20K tons of gold that it wanted to sell as the crisis continues. For this reason, investors use gold as a store of value and as an insurance against inflation and uncertainty.

This year, the price of gold has been moving higher. In fact, since August last year, the price has risen from a low of $1160 to a high of $1325, which was reached this week. The rapid growth has been helped by the change of tone by the Federal Reserve, which has turned dovish. In this week’s monetary policy meeting, the bank said that it would take a pause on further interest rates hikes. This was viewed as being bad for the USD, which dropped sharply after the statement.

Gold has come back to focus after this week’s happenings. This is after a number of central banks like ECB, BOE, and even Reserve Bank of India sounded dovish. The European Commission lowered the guidance a week after the ECB lowered the same forecast. Yesterday, the BOE lowered the guidance and the RBI lowered the interest rates by 25 basis points. On the same day, the Fed’s governor, Jerome Powell said that the US economy was at a ‘better place’. This was evidenced by last week’s better-than-expected jobs numbers.

Therefore, with other currencies going through challenges, there is a likelihood that the USD will remain to be stronger. A stronger US dollar is often viewed as being negative for gold. Therefore, there is a likelihood that the XAU/USD pair will see some declines. However, the upward momentum could continue until the pair completes the cup and handle pattern, which will see it test the resistance of 1365.

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