Gold Price Forecast: XAU/USD drifts higher to near $3,350 on rising Fed rate cut bets
- Gold price edges higher to around $3,350 in Wednesday’s early Asian session.
- Investors grow more confident about Fed interest rate cuts ahead, supporting the Gold price.
- Easing trade tensions between the US and China might cap the upside for XAU/USD.
The Gold price (XAU/USD) gains ground to near $3,350 during the early Asian session on Wednesday. The precious metal rebounds after bouncing off multi-day troughs around $3,330 amid the likelihood of a Federal Reserve (Fed) rate cut in September. Fed officials are scheduled to speak later on Wednesday, including Austan Goolsbee and Raphael Bostic.
The US Consumer Price Index (CPI) came in line with expectations, rising 2.7% on a yearly basis in July, the US Bureau of Labor Statistics (BLS) revealed on Tuesday. The annual core CPI climbed by 3.1% in July, compared to the 2.9% rise recorded in June and above the market consensus of 3%. On a monthly basis, the CPI and the core CPI rose by 0.2% and 0.3%, respectively, besting the estimates.
Traders increased the implied chance for a Fed September move following the CPI release and also put the odds of another reduction in October at about 67%, up from 55% the day before, according to the CME FedWatch tool. Rising expectations of Fed rate cuts might weigh on the Greenback and underpin the USD-denominated commodity price. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding yellow metal.
On the other hand, progress on the trade front might cap the upside for the yellow metal, a traditional safe-haven asset. US President Donald Trump on Monday agreed to delay implementing sweeping tariffs on China, extending another 90 days just hours before the last agreement between the world’s two largest economies was due to expire.
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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