Gold Price Forecast: XAU/USD edges higher to near $3,700 as Fed rate decision looms
- Gold price drifts higher to near $3,695 in Wednesday’s early Asian session.
- The Fed is anticipated to cut the rate by 25 bps on Wednesday.
- Easing tensions and improved risk sentiment might cap the Gold’s upside.
The Gold price (XAU/USD) gains ground to around $3,695 during the early Asian session on Wednesday. The precious metal edges higher amid a weak US Dollar (USD) and growing expectations for multiple rate cuts by the Federal Reserve (Fed). All eyes will be on the Fed rate decision later on Wednesday.
The Fed is widely expected to cut its key lending rate by 25 basis points (bps) at its September meeting. This would be the first rate reduction of 2025 and would lower the federal funds rate to a target range of 4.0% to 4.25%
Traders expect more rate cuts by the end of the year, as a slew of US economic data gave indications of a weak labor market and no major inflation surprises. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
“Global growth uncertainty and geopolitical risk continue to keep haven demand high, but the gold rally is being driven largely by anticipation of aggressive rate cuts from the Federal Reserve,” said Zain Vawda, analyst at MarketPulse by OANDA.
Traders will closely monitor the developments surrounding the US-China talks as the meeting between 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, continues. Any signs of easing trade tensions between the world’s two biggest economies or improved risk sentiment 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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