Gold Price Forecast: XAU/USD posts modest gain above $3,650 on potential Fed monetary policy easing
- Gold price trades with mild gains around $3,685 in Monday’s early Asian session.
- Signals of monetary policy easing from the Fed and rising geopolitical risks support the Gold price.
- Traders brace for the Fedspeak later on Monday for fresh impetus.
The Gold price (XAU/USD) posts a modest gain near $3,685 during the early Asian session on Monday. The yellow metal edges higher as the US Federal Reserve (Fed) cut the interest rates at its September meeting, as widely expected. Traders will take more cues from the Fedspeak later on Monday.
The Fed reduced its benchmark rate by 25 basis points (bps) last week, the first rate cut of 2025. This decision was supported by signs of a softening labor market and concerns about employment risks, despite inflation remaining somewhat elevated. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.
Fed Chair Jerome Powell emphasized the rate cut as a "risk-management cut" and stated that future decisions would be made "meeting by meeting," suggesting a less dovish than expected easing cycle than some investors anticipated. This, in turn, might lift the US Dollar (USD) and weigh on the USD-denominated commodity price.
Traders will also monitor the developments surrounding geopolitical risks. CNN reported that Russia carried out a major drone and missile attack across the country overnight into Saturday, according to Ukrainian President Volodymyr Zelensky. Despite diplomatic attempts to resolve the conflict, the war has increased in recent months. Geopolitical tensions in the Middle East and Eastern Europe could boost a traditional safe-haven asset like Gold.
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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