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Gold Price Forecast: XAU May Fall on Rising Oil and US Dollar

Gold price is trading below its recent all-time high, but it has held above a key support level and may be ready for another phase of growth. Investors are concerned about a recession and have been seeking safe-haven assets. In addition, the recent pandemic in many parts of the world has contributed to the demand for gold.

Global economic growth has been sluggish, and gold is no exception. The Covid-19 virus has plunged the world economy into recession and caused unprecedented money printing. In response, the Federal Reserve has cut interest rates to near zero, and quantitative easing has begun in some of the world’s largest economies. Gold prices have been falling over the last few years, but analysts have indicated that the trend will be reversed.

Rising oil prices have weakened the demand for inflation-indexed bonds, while rising US dollar has increased the odds of a recession. This decline in the oil price is good news for gold investors, as gold provides a stable store of value during a recession. Meanwhile, the US Consumer Price Index has landed at 8.6%, while the core CPI fell to 6%. Higher food and oil prices are also contributing to inflationary pressures.

While rising oil prices and the US Dollar are boosting gold prices, the situation in Eastern Europe remains a major source of uncertainty. As Russia continues to shell Ukraine and converge on Kyiv, a possible diplomatic solution might be hard to find. The Kremlin has said that more work needs to be done before the two countries can hold talks in person. Moreover, a higher yield on government bonds is not conducive to a stable price of gold, as it is not an interest bearing asset.

The US dollar is currently the strongest currency and is expected to remain strong. However, rising inflationary expectations and a growing debt burden will also hurt the gold price. Gold is the best hedge against inflation. If the US dollar and oil prices continue to rise, the price of gold could climb to $2,000 per ounce.

Gold has been used for centuries as a safe haven asset. Its low to negative correlation with most major asset classes makes it an excellent portfolio diversifier. People hedging against the volatility of the stock and bond markets also turn to gold as a hedge against uncertainty.

In addition to global markets, there are many factors affecting the price of gold. The most significant are military conflicts, financial market crises, and political instability. In these situations, gold is the best choice for investors who want a safe place to invest.

Geopolitical events can also impact gold prices. For instance, a weak US dollar can make gold less expensive for foreign buyers. Conversely, a stronger US dollar could make gold less desirable for foreigners.