Gold Price Forecast: XAU/USD tumbles to near $3,950 on Fed's hawkish comments, trade optimism

Gold price falls to around $3,965 in Monday’s early Asian session.
Trump said he would trim tariffs on China to 47% from 57%.
Cooling US-China trade tensions and the Fed’s hawkish tone weigh on the precious metal.

Lallalit Srijandorn FXStreet

Gold price (XAU/USD) slumps to near $3,965 during the early Asian session on Monday. The precious metal extends the decline as a constructive US-China outcome reinforces global risk appetite. Traders await the release of the US ISM Manufacturing Purchasing Managers' Index (PMI) data for October, which is scheduled for release later on Monday.

US President Donald Trump and Chinese President Xi Jinping agreed to avoid escalation in their trade war last week. Trump decided to lower his tariff from 57% to 47% in exchange for China suspending export controls on its rare earths and increasing purchases of American soya beans. Positive developments surrounding the US-China trade deal could reduce the demand for safe-haven assets and undermine the Gold price

Additionally, the hawkish remarks from the Federal Reserve (Fed) officials contribute to the yellow metal’s downside. The US central bank lowered its benchmark overnight borrowing rate at its October meeting last week to a range of 3.75%-4.0%.

Fed Chair Jerome Powell said during the press conference that a further reduction in the policy rate at the December meeting is not a foregone conclusion. The markets are discounting a 63% odds that the Fed will cut the fed funds target range by 25 basis points (bps) at the December meeting. The markets are discounting an overall 82 bps rate reduction by the end of 2026 to 3.06% from the current effective federal funds rate of 3.88%.

The US ISM October Manufacturing PMI data could offer some hints about the US economic outlook. If the report shows a weaker-than-expected outcome, this could drag the US Dollar (USD) lower and provide some support to 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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