Gold Price Forecast: XAU/USD extends downside to below $3,350 amid trade progress

Gold price drifts lower to near $3,335 in Monday’s early Asian session.
Optimism on trade deals undermines Gold’s safe-haven appeal.
The Fed is expected to hold the interest rate steady on Wednesday.

Lallalit Srijandorn FXStreet

The Gold Price (XAU/USD) extends the decline to around $3,335 during the early Asian session on Monday. The precious metal trades in the negative territory for the fourth consecutive day as progress on the US–EU trade deal hits safe-haven demand. Traders brace for the US Federal Open Market Committee (FOMC) policy meeting later on Wednesday.

Market sentiment improves after the EU and the US have reached a framework trade agreement that sets a blanket 15% tariff on goods traded between them, ending a months-long stand-off. The 15% tariff rates will take effect on August 1. Additionally, the US and China, the world’s two largest economies, are expected to extend their tariff truce by another three months, the South China Morning Post reported, citing unnamed sources. The risk-on sentiment weighs on the yellow metal, a traditional safe-haven asset.

The US Federal Reserve (Fed) has held its benchmark interest rate between 4.25% and 4.5% this year. Analysts expect the central bank won’t lower interest rates at its July meeting on Wednesday despite US President Donald Trump's persistent pressure. According to the CME FedWatch tool, markets have priced in nearly a 62% chance of a rate cut on September 1.

Gold traders will closely monitor the FOMC press conference for some hints about the timeline of rate reduction this year. Most Fed officials appear to be content to continue waiting to see how tariffs will move through the economy before they make any cuts. US tariffs. However, any surprise dovish remarks from Fed policymakers could boost the non-yielding Gold price as it becomes more attractive when interest rates fall or stay low.

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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