Gold Price Forecast: XAU/USD refreshes all-time high near $3,950 on firm Fed rate cut bets

Gold price jumps to near $3,950 due to multiple tailwinds.
Cooling US job market has boosted Fed dovish bets.
US President Trump acknowledges risks of mass layoffs amid government shutdown.

Sagar Dua FXStreet

Gold price (XAU/USD) posts a fresh all-time high around $3,950 during the European trading session on Monday. The yellow metal strengthens as traders become increasingly confident that the Federal Reserve (Fed) will cut interest rates by 50 basis points (bps) in the remainder of the year.

According to the CME FedWatch tool, there is an 84% chance that the Fed will reduce interest rates by 25 basis points (bps) in each of its two remaining policy meetings this year.

Lower interest rates by the Fed bode well for non-yielding assets, such as Gold.

Fed dovish expectations have intensified as labor market conditions remain weak in the wake of tariffs imposed by United States (US) President Donald Trump.

Contrary to market expectations, Chicago Fed Bank President Austan Goolsbee warns of uptick in inflation in the services sector and argued against reducing interest rates aggressively.

"You see this uptick in inflation and particularly the uptick in services inflation, which is probably not coming from tariffs," Goolsbee said, added, "I’m a little wary about front-loading too many rate cuts and just counting on the inflation going away," Reuters.

Additionally, the ongoing US government shutdown has also increased the safe-haven demand of the Gold price, as it has been leading to mass lay-offs.

On Sunday, US President Donald Trump told reporters, "It’s taking place right now," after he was asked when the White House would begin lay-offs, Reuters reported.

Gold technical analysis

Gold price extends its winning streak for eighth week. The near-term trend of the Gold price remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around $3,751.20. Upward-sloping trendline from the August 22 low around $3,321.50 will act as key support for the Gold price.

The 14-day Relative Strength Index (RSI) oscillates inside the 60.00-80.00 range, suggesting a strong bullish momentum.

On the upside, the Gold price could extend its upside towards $4,000. Looking down, the 20-day EMA will act as key support.

Gold daily chart

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

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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