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Gold Price Forecast: XAU/USD remains capped under $3,400 ahead of US inflation data

  • Gold price edges lower to around $3,390 in Monday's early Asian session. 
  • Rising Fed rate cut expectations might create a tailwind for Gold. 
  • China's central bank extended gold purchases to its ninth straight month in July. 

The Gold price (XAU/USD) attracts some sellers to near $3,390 during the early Asian session on Monday. The precious metal drifts lower amid a modest recovery in the US Dollar (USD). Traders brace for the release of the US inflation report, which is due later on Tuesday. 

A firmer Greenback and a broader risk-on sentiment undermine the USD-denominated commodity price, capping the price below the key psychological barrier at $3,400. Nonetheless, rising bets for a September rate cut by the US Federal Reserve (Fed) could provide some support to the non-yielding yellow metal. 

Fed Governor Michelle Bowman said on Saturday that recent weak job data underscores her concerns about labor market fragility and strengthens her confidence in her projection that three interest-rate cuts will likely be appropriate in 2025. Traders are now pricing in nearly an 89% chance of a Fed rate reduction in September, with at least two rate cuts priced in by the end of the year.

Additionally, the People's Bank of China (PBOC) added gold to its reserves in July, its ninth consecutive month of purchases, official data showed on Thursday. This headline might contribute to the precious metal’s upside. "Continued purchases by one of the world's largest central banks signal strong underlying demand for gold," said Zain Vawda, analyst at MarketPulse by OANDA.

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.

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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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