Gold Price Forectast: XAU/USD rises above $4,600 on US rate cut expectations, Fed uncertainty
- Gold price jumps to near $4,600 in Wednesday’s early Asian session.
- The prospect of further US rate cuts and questions over Fed independence continue to support safe-haven gold.
- The US Retail Sales and PPI data will be the highlights later on Wednesday.
Gold price (XAU/USD) rises to around $4,600 during the early Asian session on Wednesday. The precious metal gains momentum as traders firm up bets on US interest rate cuts after the release of inflation data. Traders will take more cues from the US Retail Sales and Producer Price Index (PPI) data later in the day.
The recent US Consumer Price Index (CPI) inflation report provides some support to the yellow metal as core CPI fell short of analyst expectations, raising the chances of the US Federal Reserve (Fed) continuing to cut interest rates this year. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Additionally, uncertainty surrounds the US central bank amid renewed threats by the US President Donald Trump administration. The Islamic Republic’s security forces have cracked down on large-scale demonstrations, with hundreds of people reportedly dead.
The government has cut off Internet access in Iran, making it difficult to verify how the situation is evolving on the ground. Trump has repeatedly threatened to intervene if the government kills protesters.
The US Retail Sales and PPI data will take center stage on Wednesday. These reports could offer some hints about the US interest rate path. Any signs of hotter inflation in the US could boost the US Dollar (USD) and weigh on the USD-denominated commodity price 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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