Gold prices in Saudi Arabia dropped on Tuesday. The price per gram decreased to 408.80 Saudi Riyals (SAR) from 409.77 SAR the day before. In the same way, the price for Gold per tola fell to 4,768.02 SAR from 4,779.48 SAR. In Saudi Arabia, Gold prices adjust according to global rates converted to local currency.

Historical Role Of Gold

Gold has long been seen as a safe value and a way to trade. It is often viewed as a secure asset during times of economic trouble and inflation. Central banks keep large Gold reserves to help their economies in tough times. In 2022, they added 1,136 tonnes of Gold, totaling about $70 billion—the highest annual purchase on record. Gold typically has an inverse relationship with the US Dollar and US Treasuries. Because it doesn’t have a yield, Gold prices tend to rise when interest rates are low, while a strong US Dollar can push prices down. Gold values may also increase during times of political instability or fears of economic decline. Overall, Gold prices largely depend on what happens with the US Dollar.

Impact Of US Monetary Policy

Given the inverse relationship with the dollar, the recent drop in Gold prices can be attributed to US monetary policy. The US Dollar Index (DXY) has remained strong, recently trading above 105. This strength comes as Federal Reserve officials indicate that interest rates may stay high for an extended period. A strong dollar poses challenges for assets priced in dollars. Traders might want to prepare for continued pressure or sideways movement on Gold in the short term. With May’s Consumer Price Index (CPI) data showing that inflation remains stubborn, the Fed has little reason to lower rates, which limits potential gains for Gold. Strategies like buying put options or setting up bear call spreads could be smart moves to take advantage of possible price stagnation or declines. However, we also need to consider the solid underlying support mentioned in the analysis. The World Gold Council reported that central banks continued buying in the first quarter of 2024, adding a net 290 tonnes to global reserves. This ongoing institutional demand creates a strong base, preventing a major price drop. This situation presents a balancing act for traders. Hawkish monetary policies may pull prices down, while geopolitical risks and buying from official sectors may push them up. Ongoing conflicts in the Middle East and Eastern Europe suggest that any significant price dip is likely to prompt new safe-haven buying, potentially increasing volatility in the weeks ahead. Historically, we’ve seen similar scenarios during intense rate hikes, such as in the early 1980s under Fed Chair Paul Volcker. Although high interest rates eventually drove Gold prices down back then, the initial period was marked by high volatility as markets absorbed mixed signals. We expect a similar situation now, where price movements will be erratic and very responsive to daily economic reports. Create your live VT Markets account and start trading now.

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