Gold Price Forecast: XAU/USD extends rally above $4,350 on US rate cut bets, geopolitical tensions
|- Gold price extends its upside to around $4,375 in Friday’s early European session, up 1.30% on the day.
- The prospect of a US rate cut in 2026 and geopolitical tensions lift the Gold price.
- Increased margin requirements on gold and silver futures by the CME Group might cap the upside for precious metals.
Gold price (XAU/USD) extends the rally to near $4,375 during the early European session on Friday. The rally in the precious metal is supported by the growing expectations of further interest rate cuts from the US Federal Reserve (Fed) and safe-haven demand. Traders await the release of the US economic data this month to gauge the path of interest rates. The US December Nonfarm Payrolls (NFP) report will be in the spotlight next week.
The Fed delivered the interest rate by a quarter point at its December policy meeting, bringing the federal funds rate to a target range of 3.50%–3.75%. Most Fed officials saw further interest-rate reductions as appropriate so long as inflation declines over time, though they remained divided over when and how far to cut, the Federal Open Market Committee (FOMC) Minutes showed. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Furthermore, geopolitical risks could boost a traditional asset such as Gold, as it can preserve value during periods of uncertainty. Last week, Russia accused Ukraine of launching a drone strike on the Russian presidential residence in northern Russia, prompting Moscow to reconsider its stance in peace negotiations, per Reuters. Ukraine dismissed Russian statements about the drone attack, and its foreign minister said Moscow was seeking "false justifications" for further strikes against its neighbor.
Nonetheless, the upside for the yellow metal might be limited as traders could book their profits or rebalance their portfolios. The Chicago Mercantile Exchange (CME) Group, one of the world’s largest trading floors for commodities, raised margin requirements for gold, silver, and other metals. These notices require traders to put up more cash on their bets in order to insure against the possibility that the trader will default when they take delivery of the contract.
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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