Gold Price Forecast: XAU/USD picks up to $3,970 on risk-off markets
- Gold picks up to the $3,970 area, amid higher demand for safe assets.
- Growing concerns over an AI bubble have sent equity markets tumbling across the globe.
- XAU/USD's upside attempts remain limited as the US Dollar remains firm.
Gold (XAU/USD) is trading higher on Wednesday, supported by increasing demand for safe assets, with traders spooked by the sell-off in global equity markets. The precious metal bounced up from Tuesday's lows in the area of $3,930 to session highs above $3,970 in the early European session, although it remains halfway through the last two weeks' trading range.
Safe-haven assets remain buoyed on Wednesday following significant declines in the major Wall Street equity indices, which have spread through Asia and Europe. Concerns about an AI bubble resurfaced this week, as the CEOs from some of the US largest banks warned of a significant correction as geopolitical tensions increase.
The precious metal, however, remains trapped within previous ranges, as the hawkish tilt by Federal Reserve (Fed) Chairman Jerome Powell and the wide division among the central bank's policymakers has prompted investors to reassess their bets for a December rate cut. This is providing support to US Treasury yields and the US Dollar, and keeping Gold's recovery attempts limited so far.
In the US, the Government shutdown enters its fifth week, on track to become the largest in history, depriving the market and the Fed of key data to decide monetary policy. The release of the ADP Employment Change, thus, is likely to gain particular relevance later today. The market consensus anticipates a 24,000 increase on private payrolls in October, after a 32,000 decline in September, still at levels well below the nearly 150,000 new jobs averaged from 2010 to 2025.
Later on the day, the US ISM Services PMI is expected to show a mild recovery of the sector's activity, with October's reading increasing to 50.8 from the 50.0 level in September.
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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