Gold Price Forecast: XAU/USD falls to near $4,200 on profit-taking, traders await US data
- Gold price slump to around $4,210 in Wednesday’s early Asian session.
- Traders book profits while they await key US economic data later this week.
- The market expects an 89% chance of a 25 bps Fed rate reduction in December.
Gold price (XAU/USD) tumbles to near $4,210 during the early Asian trading hours on Wednesday. The precious metal loses momentum as traders book profits ahead of the upcoming key US data releases. Traders brace for the release of the US ADP Employment Change and ISM Services PMI data later on Wednesday.
The yellow metal has fallen around 0.65% on the day amid some profit-taking from the shorter-term futures traders and improved risk appetite in the general marketplace. Nonetheless, the potential downside might be limited on imminent bets for another rate cut by the Federal Reserve (Fed) this month.
"It's probably just a little bit of profit taking ... the market's biggest focus of late has been rate cut expectations, and those remain pretty steady," said Peter Grant, vice president and senior metals strategist at Zaner Metals.
Fed funds futures traders are now pricing in nearly an 89% chance of a rate cut at the conclusion of the Fed's December 9-10 meeting, up from 71% probability a week ago, according to the CME FedWatch Tool. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Elsewhere, US envoy Steve Witkoff is set to meet Russian President Vladimir Putin this week to discuss a potential peace plan to end Russia’s war with Ukraine. Any signs of escalating tensions could boost the safe-haven asset like the Gold price, while optimism surrounding the peace deal could undermine the XAU/USD in the near term.
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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