Gold Price Forecast: XAU/USD edges higher to near $3,750 on further Fed rate cut bets
- Gold price drifts higher to around $3,750 in Tuesday’s early Asian session.
- Expectations of more US interest rate cuts and persistent political uncertainty continue to boost demand for Gold.
- Traders await the Fed’s Powell speech later on Tuesday for fresh impetus.
The Gold price (XAU/USD) gains momentum to near an all-time high of around $3,750 during the early Asian session on Tuesday. Growing expectations of further US Federal Reserve (Fed) rate cuts and persistent safe-haven demand amid political uncertainty underpin the precious metal.
The US Fed decided to cut its benchmark rate by 25 basis points (bps) last week, the first rate cut of 2025. This decision was supported by signs of a softening labor market and concerns about employment risks, despite inflation remaining somewhat elevated. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Fed Governor Stephen Miran last week voted against the quarter-percentage-point reduction in favor of a steeper 50 bps rate cut, saying that the central bank should cut interest rates aggressively to reduce risks to the economy's outlook.
Rising geopolitical risks also boost the safe-haven flows, supporting the yellow metal. Reuters reported on Tuesday that Russia's defence ministry said that its forces had taken control of the settlement of Kalynivske, in Ukraine's Dnipropetrovsk region.
"There's a continued flow of safe haven demand amid geopolitical matters that are still kind of wobbly, including the Russia-Ukraine war. Last week's Fed interest rate cut and probably more Fed rate cuts coming by the end of the year are also supporting prices," said Jim Wyckoff, senior analyst at Kitco Metals.
Traders will closely monitor a series of Fed speeches later this week, including remarks from Fed Chair Jerome Powell on Tuesday. His comments might offer some hints about the US monetary policy path. Any hawkish remarks from Fed officials could lift 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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