Gold Price Forecast: XAU/USD gains momentum to near $3,650, eyes on US CPI release
- Gold price drifts higher to around $3,645 in Thursday’s early Asian session.
- Rising Fed rate cut bets and geopolitical risks boost the Gold price.
- The US CPI inflation report for August will be the highlight later on Thursday.
The Gold price (XAU/USD) gains momentum to near $3,645 during the early Asian session on Thursday. The precious metal edges higher on expectations of a US Federal Reserve (Fed) interest rate cut, a weaker US Dollar (USD) and global geopolitical risks. All eyes will be on the US Consumer Price Index (CPI) for August, which will be released later on Thursday.
US Producer Prices rose less than expected in August, reinforcing the view that the US central bank will deliver rate cuts at its upcoming policy meeting. This, in turn, weighs on the Greenback and underpins the USD-denominated commodity price. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding yellow metal.
Traders expect a stronger Fed easing. Money markets are now fully pricing in a 25 basis points (bps) rate cut at the Fed's September meeting, while the chance of a larger 50 bps reduction has also risen to nearly 12%, according to the CME FedWatch tool.
Meanwhile, escalating geopolitical tensions in Europe and the Middle East also boost the safe-haven flows, benefitting the Gold price. Geopolitical risks in Europe rose after Poland shot down Russian drones that crossed into its territory in Russia's latest attacks on Ukraine. Additionally, Israel on Tuesday launched a strike on Doha, Qatar, targeting the senior leadership of Hamas. Qatar said the attack by Israel violated international law and threatens to widen the conflict in the Middle East.
Gold traders will take more cues from the US August CPI inflation report later on Thursday. The headline CPI is expected to show an increase of 2.9% YoY in August, while the core CPI is projected to show a rise of 3.1% YoY during the same period. If the report shows a hotter-than-expected inflation, this could lift the USD and cap the upside for the precious metal price.
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.
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