Gold Price Forecast: XAU/USD drifts higher to near $3,650 as Fed is expected to cut rates
- Gold price trades on a stronger note around $3,640 in Monday’s early Asian session.
- Markets expect the Fed to cut its interest rate on Wednesday.
- The US-China meeting heads into the second day focused on trade and economy.
The Gold price (XAU/USD) edges higher to near $3,640 during the early Asian session on Monday. The yellow metal gains traction as a weakening US labor market reinforces expectations that the Federal Reserve (Fed) will deliver its first rate cut of the year this week.
The US central bank is anticipated to deliver a quarter-point rate cut at its September meeting on Wednesday, with a small potential for a 50 basis points (bps) move amid signs US job growth is slowing rapidly.
Markets have also priced in rate reductions continuing deep into 2026 to ward off a recession. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
"Weaker employment and spotty inflation... priced in with the Fed having to cut rates is pushing metals higher because there is the risk of longer-term inflation," said Daniel Pavilonis, senior market strategist at RJO Futures.
US and Chinese representatives, helmed by US Treasury Secretary Scott Bessent and Trade Representative Jamieson Greer and a Chinese official led by Vice Premier He Lifeng, discussed trade and the economy during high-level talks in Madrid. Traders will closely monitor the developments surrounding the US-China talks as the meeting heads into the second day. Any signs of easing trade tensions between the world’s two biggest economies could boost the risk sentiment, weighing on the safe-haven asset like Gold.
Gold FAQs
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.
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.
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.
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.
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