Gold Price Forecast: XAU/USD flat lines above $2,600 as traders await fresh catalysts

Gold trades flat around $2,625 in Monday’s early Asian session.
More cautious approach to monetary easing next year from the Fed drags the Gold price lower.
Softer US PCE inflation data, the upturn in China’s Gold demand and geopolitical risks might the downside for XAU/USD.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) holds steady near $2,625 during the early Asian session on Monday. The hawkish stance of the Federal Reserve (Fed) might weigh on the yellow metal. However, the softer Greenback after the weaker inflation report could cap its downside.

The Fed lowered interest rates in the December meeting as expected but signaled that it will slow the pace at which borrowing costs fall any further. The Fed's dot plot, a chart that projects the future path of interest rates, indicated a half-percentage point rate cut in 2025, compared with a full percentage cut projected in September. This, in turn, continues to lift the US Dollar (USD) and undermine the USD-denominated Gold as higher real interest rates increase the opportunity cost of gold.

On the other hand, softer-than-expected US inflation data could help limit the precious metal’s losses. The US inflation, as measured by the Personal Consumption Expenditures (PCE) Price Index, rose to 2.4% YoY in November from 2.3% in October. The reading came in below the market consensus of 2.5%. Meanwhile, the Core PCE jumped 2.8% in November, compared to 2.8% In the previous reading, but below the 2.9% expected.

The upturn in Gold demand in China might contribute to the yellow metal’s upside as China is the world’s largest Gold consumer nation. With less than 6 weeks until Chinese New Year, the world's heaviest gold-buying festival overtakes Diwali in India. Additionally, the ongoing geopolitical tensions in the Middle East could boost the safe-haven flows, benefiting the Gold price.

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.

GBP/USD upside remains capped below 1.3400

GBP/USD trades in positive territory, with the upside capped below 1.3400 in the second half of the day on Friday. The US Dollar remains on the back foot following the weaker-than-expected US Nonfarm Payrolls report, which fades Fed rate hike expectations, and helps the pair stay on track for weekly gains.

EUR/USD stabilizes near 1.1450, looks to post weekly gains

EUR/USD builds on Thursday's gains and trades modestly higher on the day at around 1.1450. The US Dollar struggles to find demand following the disappointing June employment report and helps the pair remain on track to end the week in positive territory.

Gold on track to snap four-week losing streak as USD weakens on easing Fed hike bets

Gold retains its bullish bias for the third straight day and extends its rebound toward $4,200. The precious metal seems poised to register gains for the first time in five weeks as investors reassess the timing of a potential Fed rate hike after the disappointing June employment data.

Hyperliquid gears up for a higher leg as bullish momentum resurfaces

Hyperliquid (HYPE) extends gains above $66 maintaining a long-term upward trend supported by its rising 50-day EMA around $60. Retail demand for HYPE rises in the near term, with Open Interest up around 5% over 24 hours as funding rates hold above zero, while institutional demand remains muted so far this week.

The Iran war failed to trigger a recession. Can the US economy keep defying expectations?

Nearly four months after the start of the Iran war, the US economy remains remarkably resilient. While the conflict initially triggered a severe disruption to global energy markets and a sharp rise in Oil prices, recent diplomatic progress between Washington and Tehran has eased concerns about a prolonged supply shock.

Kevin Warsh offers no policy clues: Why markets still got their answer

Financial markets came to Sintra looking for clues about the Federal Reserve's (Fed) next move. They largely left with confirmation that Fed Chair Kevin Warsh intends to make those clues much harder to find.