Gold Price Forecast: XAU/USD drifts higher to near $3,750 amid rate cut bets, geopolitical risks
- Gold price gains ground to near $3,750 in Thursday’s early Asian session.
- Geopolitical tensions and uncertainty boost the safe-haven flows.
- Fed Powell's cautious remarks on potential interest rate cuts might cap the Gold’s upside.
Gold price (XAU/USD) trades in positive territory around $3,750 during the early Asian session on Thursday. The precious metal edges higher amid expectations of further US rate cuts from the Federal Reserve (Fed) this year and persistent geopolitical risks.
The Fed cut its benchmark interest rate by 25 basis points (bps) at its September meeting, bringing the Federal Funds Rate to a target range of 4.00% to 4.25%. A Summary of Economic Projections (SEP), or ‘dot-plot’, showed that the median Fed policymakers expect two more rate reductions before the end of 2025, and one more in 2026. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Furthermore, geopolitical uncertainty boosted demand for safe-haven assets like Gold. NATO warned Russia on Tuesday that it would use "all necessary military and non-military tools" to defend itself as it condemned Moscow for violating Estonian airspace in "a pattern of increasingly irresponsible behaviour”.
On the other hand, cautious remarks from Fed Chair Jerome Powell about the timing of the next cut in US interest rates might cap the upside for the yellow metal. Powell said on Tuesday that the US central bank would continue to balance concerns over labour market weakness with worries about inflation, while Fed officials took stances on both sides of the monetary policy path divide.
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.
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.
