Gold Price Forecast: XAU/USD edges higher above $4,300 on Fed rate cut bets
- Gold price drifts higher to near $4,315 in Monday’s early Asian session.
- Fed rate cut expectations and safe-haven flows could support the Gold price.
- Traders await the US October NFP data later on Tuesday for fresh impetus.
Gold price (XAU/USD) attracts some buyers to around $4,315 during the early Asian trading hours on Monday. The precious metal extends its upside to the highest since October 21 amid the prospect of interest rate cuts by the US Federal Reserve (Fed) next year. The delayed US Nonfarm Payrolls (NFP) report for October will be in the spotlight later on Tuesday.
The US central bank last week announced its third and final quarter-point rate reduction this year, cutting interest rates by 25 basis points (bps) to a target range of 3.50% to 3.75%. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Uncertainty and the risk-off sentiment could boost the safe-haven flows, benefiting the yellow metal price. Bloomberg reported on Sunday that a mass shooting at Bondi Beach in the Australian city of Sydney had killed at least 16 people and wounded 40. Australian Prime Minister Anthony Albanese said in a press conference early Monday that the shooting was a “targeted attack” on the Jewish community. He had previously described the incident as an “act of evil antisemitism, terrorism that has struck the heart of our nation.”
Meanwhile, Chicago Fed President Austan Goolsbee said that he “felt the more prudent course would have been to wait for more information” before cutting rates again after a government shutdown delayed several key economic reports in October and November. Additionally, Cleveland Fed President Beth Hammack stated that the central bank should keep rates high enough to continue putting downward pressure on inflation.
Traders will take more cues from the speeches by Fed Governor Stephen Miran and New York Fed President John Williams later in the day. Any hawkish remarks from Fed officials could lift the US Dollar (USD) and drag the USD-denominated commodity price lower.
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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