Gold Price Forecast: XAU/USD holds gains above $4,300 on prospect of further Fed rate cuts
- Gold price gains ground to near $4,305 in Tuesday’s early Asian session.
- Fed's official projections indicated only one rate cut next year, but the outlook is highly uncertain.
- Progress in Ukraine peace talks could weigh on the Gold price, a safe-haven asset.
Gold price (XAU/USD) extends its upside to around $4,305, the highest since October 21, during the early Asian trading hours on Tuesday. The precious metal edges higher on further US Federal Reserve (Fed) cut bets. The US Nonfarm Payrolls (NFP) report will take center stage later on Tuesday. Also, the US Retail Sales and Purchasing Managers Index (PMI) will be published.
The US Fed implemented its third cut of the year last week and signaled an additional rate reduction next year, supporting the yellow metal. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
According to the Summary of Economic Projections (SEP), or so-called “dot plot,” the median forecast points to only one 25 basis points (bps) rate cut by the end of 2026. However, financial markets are generally pricing in the probability of at least two rate reductions by the year-end.
The US federal shutdown has delayed the publication of a collection of US economic data, which will be released later on Tuesday. Traders await the US employment data for more clues about the US interest rate path. "If the data point to a meaningful slowdown, I believe this would reinforce bets on rate cuts and push gold to test higher levels," said Rania Gule, senior market analyst at XS.com.
On the other hand, optimism surrounding Ukraine peace talks could undermine a traditional safe-haven asset like Gold. US officials said on Monday that an agreement with Ukrainian President Volodymyr Zelenskyy to end its war with Russia was nearly complete, although territorial disputes remain unresolved and a strong security guarantee from the US and European countries remains a sticking point.
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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