Gold Price Forecast: XAU/USD tumbles to near $4,050 on renewed optimism around US-China trade talks
- Gold price slumps to near $4,065 in Monday’s early Asian session, down 1.10% on the day.
- Renewed optimism around US-China trade talks could undermine the safe-haven assets like Gold.
- Markets are largely forecasting a 25 bps reduction in the Federal Funds Rate at the October meeting.
Gold price (XAU/USD) falls to around $4,065 during the early Asian session on Monday. The precious metal extends the decline as traders book profits following a prolonged record-setting rally. The meeting between US President Donald Trump and Chinese President Xi Jinping in South Korea on Thursday will be closely watched.
Traders move to lock in profits since gold was trading at or near all-time highs. Also, renewed optimism about US-China trade discussions and a renewed US Dollar (USD) capped safe-haven flows to gold. US Treasury Secretary Scott Bessent said on Sunday that the US and China have agreed on the framework of a potential trade deal that will be discussed when US President Donald Trump and Chinese President Xi Jinping meet later this week.
Bessent further stated that he expects China to delay implementation of its rare earth minerals and magnets licensing regime by a year while the policy is reconsidered.
On the other hand, softer US inflation data released on Friday has reinforced the expectation of rate cuts from the US Federal Reserve (Fed). Markets are pricing in a near certainty that the Fed lowers its benchmark overnight borrowing rate by 25 basis points (bps) from its current target range of 4.0%-4.25%.
Traders are also expecting another reduction in December. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
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
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.
