Gold Price Forecast: XAU/USD drifts higher above $3,950 on global uncertainty
- Gold price attracts some buyers to near $3,970 in Tuesday’s early Asian session.
- Global uncertainty boosts demand for the safe-haven metal.
- Imminent US rate cuts underpin the Gold price, with two more Fed rate reductions expected this year.
Gold price (XAU/USD) extends its rally to around $3,970 during the early Asian session on Tuesday. The precious metal edges higher on political uncertainty across the globe and the expectation of a US interest rate cut. Gold prices broke the $3,000 psychological level for the first time in March and $3,900 on Monday.
Economic and political uncertainty in the US, France and Japan boost the safe-haven flows, benefiting the Gold price. Sanae Takaichi’s surprise victory in the Liberal Democratic Party (LDP) leadership election marks an important turning point for Japan’s policy and market outlook and pushes back the likely timing of the Bank of Japan’s (BoJ) next rate hike.
In France, new Prime Minister Sebastien Lecornu and his government resigned on Monday, hours after taking office, deepening the country’s political crisis. Meanwhile, the US government shutdown entered its sixth day, with the US President Donald Trump administration warning it was moving forward with plans to slash the federal workforce.
“A slew of political and economic concerns around the world, such as the resignation of France’s new prime minister, rising yields in Japan and an ongoing US government shutdown, is all contributing to gold’s latest rally,” said Edward Meir, an analyst at Marex.
Furthermore, the prospect of an interest rate cut by the US Federal Reserve (Fed) might contribute to the yellow metal’s upside. Investors are currently pricing in nearly a 25 basis points (bps) reduction at the Fed meeting this month, with an additional 25 bps cut expected in the December policy meeting, according to the CME FedWatch tool. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Traders will keep an eye on the Fedspeak later on Tuesday. Fed’s Raphael Bostic, Michelle Bowman, Stephen Miran and Neel Kashkari are scheduled to speak. Any hawkish remarks from Fed policymakers 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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