Positive expectations for gold prices despite its modest gains above $2,600

The price of gold consolidated its gains near $2,660 after reaching the highest level in two weeks during a time when safe haven flows amid geopolitical tensions provide some support for the precious metal, according to the MI Trade website.
Factors affecting gold prices
Observers believe that this week’s data will affect gold prices globally, as the US manufacturing PMI results for December will take center stage later on Friday. Richmond Fed leader Thomas Barkin is also scheduled to speak.

Gold and geopolitical changes

Investors will be closely monitoring developments surrounding geopolitical risks as any signs of escalating tensions in the Middle East, Russia and Ukraine could boost the price of gold, a traditional safe-haven asset.
Central banks’ purchases of gold
Purchasing activities by central banks could contribute to the yellow metal’s rise. Global central banks bought 694 tons of gold during the first nine months of 2024.
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Henrik Marx, head of global trading at Heraeus Precious Metals, noted: “Central bank interest will be a strong base for buying next year,” expecting gold to reach high levels of $2,950 per ounce in 2025.

Interest rates and gold

On the other hand, the slower pace of interest rate cuts by the US Federal Reserve may impact non-yielding assets.
The US central bank decided to cut interest rates in December, but indicated that borrowing costs will fall more slowly than previously expected this year.
Central banks tend to diversify their reserves and buy gold to improve the perceived strength of the economy and the currency.
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High gold reserves can be a source of confidence in a country’s ability to meet its obligations. Central banks added 1,136 tons of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest annual purchase since records began.
Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.

Gold and dollar

Gold has an inverse relationship with the US dollar and US Treasuries, both of which are major reserve assets and safe havens.
When the value of the dollar falls, gold tends to rise, allowing investors and central banks to diversify their assets in turbulent times, while gold is also inversely related to risky assets. Stock market rises tend to weaken the price of gold, while sell-offs in riskier markets tend to favor the precious metal.

Factors leading to gold rising

The price may move due to a wide range of factors. Geopolitical instability or fears of a deep recession can cause the price of gold to rise rapidly due to its safe haven status. As a non-yielding asset, gold tends to rise as interest rates fall, while the rising cost of money usually weighs on the yellow metal.
On the other hand, uncertainty surrounding the policies of incoming President Donald Trump may lift the precious metal.
The increase in global demand for gold by central banks may contribute to a rise in the price of the precious metal. Major central banks are likely to buy more gold in the next twelve months, and this will boost demand for the yellow metal.