Gold Price Forecast: XAU/USD climbs above $4,200 on rate cut hopes, safe-haven flows

Gold price extends its upside near $4,210 in Thursday’s early Asian session.
Market continues to monitor the US-China trade tensions.
Expectations that the Fed will deliver another interest rate cut this month lift the Gold price.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) attracts some buyers to around $4,210 during the early Asian session on Thursday. The precious metal rises to near a fresh all-time high as US rate cut expectations and trade tensions continue to boost demand for the safe-haven assets. Traders will take more cues from the Fedspeak later on Thursday. Federal Reserve (Fed) policymakers Michael Barr, Stephen Miran, Christopher Waller, and Michelle Bowman are set to speak.

Fed’s Powell said on Tuesday that a sharp slowdown in hiring poses a growing risk to the US economy, suggesting that the US central bank will likely cut its key interest rate twice more this year. The prospect of a Fed rate cut could provide some support to the yellow metal. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

Markets are currently priced for a 25 basis points (bps) rate cut at the October Fed meeting and another at the following meeting in December, followed by three more reductions next year, according to LSEG data.

Rising trade tensions between the US and China might contribute to Gold’s upside. Both countries will impose additional port fees on ships carrying cargo between them. This measure will likely raise trading costs and disrupt freight flows. The US is scheduled to start collecting fees on October 14.

“With US-China trade tensions being reignited in the last few days, investors have even more reason to hedge their long equity bets by diversifying into gold,” Fawad Razaqzada, an analyst at City Index and FOREX.com, told Reuters.

Traders brace for the Fedspeak later on Thursday for some hints about the US interest rate path. Any surprise hawkish remarks from Fed officials could lift the US Dollar (USD) and undermine the USD-denominated commodity price in the near term.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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.

Author

Lallalit Srijandorn

FXStreet

Lallalit Srijandorn is a Parisian at heart. She has lived in France since 2019 and now becomes a digital entrepreneur based in Paris and Bangkok.

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