Gold Price Forecast: XAU/USD holds positive ground near $3,750 amid mixed signals from Fed officials
- Gold Price drifts higher to around $3,750 in Friday’s early Asian session.
- Traders continue to assess mixed signals from Fed officials.
- The US PCE inflation data for August will be in the spotlight later on Friday.
Gold Price (XAU/USD) edges higher to near $3,750 during the early Asian session on Friday. The precious metal gains ground amid expectations of further US rate cuts from the Federal Reserve (Fed) this year and rising geopolitical risks. The release of the US Personal Consumption Expenditures (PCE) Price Index data for August will take center stage later on Friday.
The US central bank decided to cut its benchmark interest rate by 25 basis points (bps) at its September meeting, bringing the Federal Funds Rate to a target range of 4.00% to 4.25%. Traders are expecting at least two rate reductions in this year's remaining two Fed meetings. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
However, comments from Fed policymakers, including Chair Jerome Powell, indicated a lot will depend on upcoming economic data. Meanwhile, Fed Governor Stephen Miran preferred a more aggressive 0.50% cut, arguing that with temporary tariff effects aside, inflation was closer to the 2% target. The cautious tone of Fed officials might cap the upside for the yellow metal in the near term.
Traders will closely watch the US PCE inflation data later on Friday for fresh impetus. The Fed’s preferred measure of underlying inflation likely grew at a slower pace last month. “Softer inflation could strengthen the case for Fed rate cuts, supporting bullion, with markets pricing two cuts this year,” Kaynat Chainwala, analyst at Kotak Securities Ltd., said in a Thursday note.
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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