Gold Price Forecast: XAU/USD drifts higher above $4,200 as Fed delivers expected cut
- Gold price edges higher to near $4,235 in Thursday’s early Asian session.
- Federal Reserve cut the interest rates by 25 bps at its December meeting on Wednesday.
- Donald Trump set a deadline for the Ukraine peace deal.
Gold price (XAU/USD) gains momentum to around $4,235 during the early Asian session on Thursday. The precious metal extends its upside after the US Federal Reserve (Fed) delivered an expected third consecutive interest rate cut and maintained its outlook for just one cut in 2026. Traders will keep an eye on the US weekly Initial Jobless Claims later on Thursday.
The US Fed decided to lower its key lending rate by 25 basis points (bps), bringing it in a range of 3.50% to 3.75%. This marks its lowest level in three years. Fed Chair Jerome Powell said during the press conference that policymakers need time to see how the Fed's three cuts this year work their way through the US economy.
Powell added that the Fed officials will closely examine incoming data leading up to the Fed's next meeting in January. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal. Markets are currently pricing in nearly a 78% chance that the Fed will hold interest rates steady next month, compared with a 70% probability just before the rate cut announcement, according to the CME FedWatch tool.
US President Donald Trump told Ukrainian President Volodymyr Zelensky that he has until Christmas to accept his deal to end the war with Russia, per the Telegraph. Meanwhile, Zelensky said he is finalizing a revised peace proposal that he will deliver to the US soon, hinting at potential progress as Trump increases pressure on Kyiv to agree to a peace deal with Moscow. Any signs of progress in the Ukraine peace deal could undermine a traditional safe-haven asset like Gold 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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