Gold Price Forecast: XAU/USD snaps three-day losing streak as Fed’s policy takes centre stage
- Gold price bounces back to near $4,020 after three-day losing streak.
- The Fed is almost certain to cut interest rates by 25 bps to 3.75%-4.00%.
- Investors await the meeting between US President Trump and Chinese leader Xi.
Gold price (XAU/USD) snaps its three-day losing streak, trading 1.70% higher to near $4,020 during the European trading session on Wednesday. The precious metal bounces back ahead of the Federal Reserve’s (Fed) monetary policy announcement at 18:00 GMT.
According to the CME FedWatch tool, traders have priced in a 25-basis-point (bps) interest rate reduction by the Fed that will push the Federal Fund rate to 3.75%-4.00%.
Lower interest rates by the Fed bode well for non-yielding assets, such as Gold.
Meanwhile, the US Dollar (USD) also trades higher ahead of the Fed’s policy, with the US Dollar Index (DXY) trading 0.15% higher around 99.00. 10-year US Treasury yields edge up to near 4.00%.
In the Fed’s monetary policy announcement, investors will also look for cues about whether the United States (US) central bank will cut interest rates again in December. Market participants would also look for cues about the current status of the labor market amid the absence of US economic data releases due to the federal shutdown.
The next trigger for the Gold price will be the meeting between US President Donald Trump and Chinese leader Xi Jinping in South Korea on Thursday. Both leaders are expected to sign the trade deal and discuss various issues such as technology sharing, rare earth exports to Washington, and tariffs.
The scenario of improving trade relations between the two powerhouses would diminish the appeal of safe-haven assets, such as Gold.
Gold technical analysis
Gold price bounces back on Wednesday after attracting bids near the three-week low of $3,886.60 posted on Tuesday. However, the Gold price struggles to extend its upside above the 20-day Exponential Moving Average (EMA) around $4,035.60.
The 14-day Relative Strength Index (RSI) falls inside the 40.00-60.00 range, indicating a sideways trend in the near term.
On the upside, the Gold price would revisit its all-time high of $4,380 if it extends its recovery move above the October 22 high of $4,161.40. Looking down, the Gold price could slide towards the September 25 low of $3,722.07 if it breaks below the October 28 low of $3,886.60.
Gold daily chart
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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.
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.
