Source: Forex News
Gold has been an important metal for centuries. It has long been associated with value and prestige. Today, gold’s main use is for investments. In fact, most of the gold mined is usually bought by central banks like the Federal Reserve and investment companies. A small portion of this gold is used in the manufacture of jewellery. The latter use has been increasing as the world economy improves.
The basic way to explain gold is to view it as an insurance policy. People buy insurance policies to help them hedge against risk. For example, when a car gets involved in an accident, it will be repaired by the insurance policy of the holder. Holders of gold on the other hand believe that their gold will be very valuable if there is a major disaster in the world such as the Armageddon.
Because of this, the price of gold tends to rise when the markets fall. Most importantly, because it is usually quoted in dollars, the price of gold rises when the USD falls. When the dollar strengthens, gold tends to fall.
A good example of this was what happened yesterday and overnight. After Trump called the Federal Reserve crazy, the USD declined. After the president said this, tjhe USD declined sharply. This was a continuation of the previous declines. Traders believe that ultimately, the Fed will slow down the current pace of interest rates hikes.
The XAU/USD pair reached a high of 1195 in overnight trading. This was 5 points lower than the important level of 1200. The price is at the middle band of the Bollinger Bands. Therefore, the number to watch today will be the US inflation numbers. An increase in inflation may continue to make the case for further tightening, which may lead to the dollar strengthening and gold weakening.