Gold Price Forecast: XAU/USD recovers above $4,100, hawkish Fed might cap gains
- Gold price rebounds to around $4,105 in Monday’s early Asian session.
- Markets are bracing for a flood of delayed economic reports that could signal a slowing US economy.
- Hawkish Fed comments might cap the upside for the Gold price.
Gold price (XAU/USD) recovers some lost ground to near $4,105, snapping the two-day losing streak during the early European session on Friday. The precious metal edges higher on the softer US Dollar (USD). Traders will take more cues from the Fedspeak later on Monday. The Fed’s John Williams, Philip Jefferson, Neel Kashkari and Christopher Waller are set to speak.
Improved market sentiment after the federal government reopened undermined the safe-haven assets, such as the Gold price. The US government has reopened after US President Donald Trump signed a funding bill into law last week, ending the longest shutdown in US history, which lasted 43 days. Federal employees were directed to return to work on Thursday.
However, investors continue to grapple with uncertainty over the release of delayed economic data following the record-long shutdown. Analysts believe that the resumption of US economic data will show job market weakness and a potential slowdown. This, in turn, could weigh on the Greenback and lift the USD-denominated commodity price. Non-yielding yellow metal tends to perform well during periods of economic uncertainty and in a low-interest-rate environment.
The upside for the yellow metal might be limited due to hawkish remarks from US Federal Reserve (Fed) officials, dimming hopes for a December interest rate cut. Kansas City Fed President Jeffery Schmid said on Friday that monetary policy should “lean against demand growth,” adding that current Fed policy is “modestly restrictive,” which he believes is appropriate.
Financial markets are now pricing in a nearly 54% chance that the Fed will cut its benchmark overnight borrowing rate by 25 basis points (bps) at its December meeting, down from 62.9% probability that markets priced in earlier last week, according to the CME FedWatch Tool.
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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