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Gold Price Forecast: XAU/USD edges lower below $3,650 on profit-taking

  • Gold price drifts lower to near $3,630 in Friday’s early Asian session.
  • A firmer US dollar and profit-taking drag the Gold price lower.
  • Expectations of a Fed rate reduction and geopolitical risks might boost the safe-haven flows, capping the Gold’s losses. 

The Gold price (XAU/USD) edges lower to around $3,630 during the early Asian session on Friday. The precious metal retreats from a record high on some profit-taking. Nonetheless, the rising bets of the US Federal Reserve (Fed) rate cut in the upcoming meeting might cap its downside. Traders await the University of Michigan Consumer Sentiment Index data, which is due later on Friday. 

A modest rebound in the US Dollar (USD) and a wave of profit-taking weigh on the USD-denominated commodity price as traders continue to assess the US inflation reports, which will help shape the next steps in the Fed’s monetary policy. 

Nonetheless, US data showed a surprise decline in the Producer Price Index (PPI) inflation and weakness in the labor market. These reports reinforced the case that the Fed will cut the interest rate in the September policy meeting. 

Barclays analysts predict three straight rate cuts by the US central bank by the end of the year. They forecast a 25 basis points (bps) reduction in September, October, and December. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal. 

Furthermore, persistent geopolitical risks in Europe and the Middle East could boost the Gold price, a traditional safe-haven asset. Geopolitical tensions in Europe rose after Poland shot down Russian drones that crossed into its territory in Russia's latest attacks on Ukraine. Additionally, Israel on Tuesday launched a strike on Doha, Qatar, targeting the senior leadership of Hamas.  

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

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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