Gold hits new record-high, USD struggles to find direction

Here is what you need to know on Thursday, February 20:

While major currency pairs are having a tough time making a decisive move in either direction, Gold extends its uptrend to a new record-high on Thursday. The US economic calendar will feature the weekly Initial Jobless Claims report and the European Commission will publish the preliminary Consumer Confidence Index data for February. Later in the American session, several Federal Reserve (Fed) policymakers will be delivering speeches.

US Dollar PRICE This week

The table below shows the percentage change of US Dollar (USD) against listed major currencies this week. US Dollar was the weakest against the Japanese Yen.

The heat map shows percentage changes of major currencies against each other. The base currency is picked from the left column, while the quote currency is picked from the top row. For example, if you pick the US Dollar from the left column and move along the horizontal line to the Japanese Yen, the percentage change displayed in the box will represent USD (base)/JPY (quote).

The minutes of the Fed's January policy meeting showed on Wednesday that officials debated whether it might be wise to slow or even pause the reduction of their balance sheet holdings, given that renewed concerns over the federal debt ceiling have come back into play. Meanwhile, US President Donald Trump noted that it could be possible to make a new trade deal with China. These comments failed to trigger a noticeable market reaction and Wall Street's main indexes ended the day marginally higher. Early Thursday, US stock index futures trade in negative territory and the US Dollar Index holds steady near 107.00 after posting small gains for two consecutive days.

The data from Australia showed early Thursday that the Unemployment Rate edged higher to 4.1% in January from 4% in December, as expected. In this period, Full-Time Employment rose by 54.1K after declining by 23.7K in December. In the meantime, the People’s Bank of China (PBoC), China's central bank, announced that it left the one-year and five-year Loan Prime Rates (LPRs) unchanged at 3.10% and 3.60%, respectively. AUD/USD edged slightly higher in the Asian trading hours and was last seen trading above 0.6360.

EUR/USD failed to gather recovery momentum and closed in the negative territory for the third consecutive day on Wednesday. The pair trades in a tight range below 1.0450 in the European morning on Thursday.

Although stronger-than-expected inflation data from the UK helped Pound Sterling stay resilient against its rivals in the early European session on Wednesday, GBP/USD lost its traction and closed the day marginally lower. The pair holds its ground to begin the European session and trades near 1.2600.

Growing expectations for a hawkish Bank of Japan (BoJ) policy outlook continue to support the Japanese Yen (JPY). Earlier in the day, Japan's 10-year government bond yield touched its highest level in 15 years. At the time of press, USD/JPY was trading at its lowest level since early December near 150.00, losing about 1% on the day.

Following Thursday's choppy action, Gold resumed its uptrend early Thursday and touched a fresh record high near $2,950.

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.