Gold Price Forecast: XAU/USD edges higher to near $4,000 as traders seek safe-haven
- Gold price drifts higher to around $3,990 in Wednesday’s early Asian session.
- Investors are now pricing in a 25 bps cut at the Fed meeting later this month.
- Geopolitical risks and economic uncertainty boost the safe-haven flows, supporting the Gold price.
Gold price (XAU/USD) extends the rally to near $3,990 during the early Asian session on Wednesday. The expectation of a US interest rate cut, geopolitical risks and economic uncertainty provide some support to the precious metal. Traders will keep an eye on the FOMC Minutes later on Wednesday.
The rally of the yellow metal is bolstered by the safe-haven flows as the US government shutdown entered its second week. The ongoing shutdown has delayed the release of key economic data, including the US Nonfarm Payrolls (NFP) data, which is potentially complicating the Fed's decision-making.
The US Federal Reserve (Fed) is widely expected to cut the federal funds rate by 25 basis points (bps) at its October meeting, lowering the target range to 3.75% to 4.00%. Financial markets are now pricing in nearly an 83% chance of an additional Fed rate cut in December, according to the CME FedWatch Tool, though this will likely depend on data released before then. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Meanwhile, political turmoil in France and Japan contributes to the upside of gold. Sanae Takaichi’s surprise victory in the Liberal Democratic Party (LDP) leadership election marks an important turning point for Japan’s policy and market outlook and pushes back the likely timing of the Bank of Japan’s (BoJ) next rate hike. In France, new Prime Minister Sebastien Lecornu and his government resigned on Monday, hours after taking office, deepening the country’s political crisis.
Looking ahead, the FOMC Minutes will be closely watched later on in the day, as they might offer some hints about the US interest rate path. Any signs of a hawkish tone from the Fed could lift the US Dollar (USD) and weigh on the USD-denominated commodity price in the near term.
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.