Gold Price Forecast: XAU/USD slips to near $3,380 on resilient US Dollar
- Gold price declines as the US Dollar holds gains during the European hours.
- The safe-haven metal may attract buyers amid rising Fed concerns.
- Non-interest-bearing assets may draw demand as Fed Governor Cook’s departure boosts rate-cut expectations.
Gold price (XAU/USD) depreciates after registering more than three-quarters of losses in the previous session, trading around $3,380 per troy ounce during the European hours on Wednesday. The price of the dollar-denominated Gold struggles as the US Dollar (USD) shows resilience despite rising concerns over the United States (US) Federal Reserve (Fed) independence.
However, the Gold price may regain its ground due to increased safe-haven demand. Traders assess the latest headlines surrounding the escalating feud between US President Donald Trump and the Federal Reserve.
Fed Governor Lisa Cook will reportedly file a lawsuit challenging her removal by US President Donald Trump. While speaking at a Cabinet meeting on Tuesday, Trump noted that he is prepared to abide by any court decision but indicated he was not concerned about Cook’s challenge.
Non-interest-bearing assets, including Gold, may attract buyers as the dismissal of Fed Governor Cook could increase the likelihood of heavy interest rate cuts, given Trump’s ongoing pressure on the central bank to reduce borrowing costs. It is worth noting that lower interest rates could prompt investors to pick precious metals to gain better returns.
Traders are now pricing in more than 87% odds for a cut of at least a quarter-point at the Fed’s September meeting, up from 84% previous day, according to the CME FedWatch tool. Focus will shift toward the upcoming release of the Q2 US Gross Domestic Product Annualized and July Personal Consumption Expenditures Price Index data, the Fed's preferred inflation gauge, due later this week.
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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