Gold Price Forecast: XAU/USD holds steady near $3,750 as traders digest Fed’s Powell speech

Gold price flat lines around $3,760 in Wednesday’s early Asian session.
Traders still expect Fed rate cuts in October and December after Fed cut rates by 25 bps earlier this month.
The US PCE inflation report for August will take center stage later on Friday.

Lallalit Srijandorn FXStreet

The Gold price (XAU/USD) holds steady near $3,760 after retreating from an all-time high of $3,791 during the early Asian session on Wednesday. Rising expectations of further US rate cuts and safe-haven flows provide some support to the precious metal.

The US Federal Reserve (Fed) Chair Jerome Powell said on Tuesday that the central bank faces a "challenging situation" with ongoing risks of faster-than-expected inflation, while weak job growth raises concerns about labor market health. Powell added that he is comfortable with the current policy path, though he indicated the possibility of further cuts should the FOMC see the need to be more accommodative.

According to the CME FedWatch tool, markets are expecting two more 25 basis points (bps) Fed rate cuts, one each in October and December, with a 90% and 73% chance, respectively. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

Additionally, the escalating geopolitical tensions in Russia boost the Gold price, a traditional safe-haven asset. NATO warned Russia 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”.

The attention will shift to the release of the US Personal Consumption Expenditures (PCE) Price Index for August data, the Fed's preferred measure of inflation. If the report shows a hotter-than-expected inflation outcome, this could lift the US Dollar (USD) and weigh on 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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