Gold Price Forecast: XAU/USD extends upside above $3,350 as traders ramp up rate cut bets
- Gold price drifts higher to near $3,365 in Thursday’s early Asian session, adding 0.25% on the day.
- Soft US inflation and jobs data prompted expectations for Fed rate reductions.
- Easing trade tensions might dampen the demand for Gold, a safe-haven asset.
The Gold price (XAU/USD) attracts some buyers to around $3,365 during the early Asian session on Thursday. The precious metal edges higher for the third consecutive day amid a weaker US dollar (USD). Traders will take more cues from the US Producer Price Index (PPI) and the weekly Initial Jobless reports, which will be released later on Thursday.
Mild US inflation data cemented expectations for a Federal Reserve (Fed) rate cut in the September meeting and raised the odds of additional reductions later this year. This, in turn, weighs on the Greenback and provides some support to the USD-denominated commodity price. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding yellow metal.
“Gold is buoyant on heightened expectations of a September Fed rate cut, following benign CPI data and July’s weak non-farm payrolls,” said Nikos Tzabouras, senior market analyst at tradu.com.
According to the CME FedWatch tool, markets are pricing in a 94% possibility of a September Fed cut after mild July inflation data signaled limited pass-through from US President Donald Trump’s sweeping import tariffs.
Nonetheless, progress on the trade front might cap the upside for a traditional safe-haven asset like the yellow metal. US President Donald Trump on Monday agreed to delay implementing sweeping tariffs on China, extending another 90 days just hours before the last agreement between the world’s two largest economies was due to expire.
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.