Gold Price Forecast: XAU/USD extends the rally above $4,150 amid safe-haven flows

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Gold price gains momentum around $4,165 in Wednesday’s early Asian session.
US-China trade tensions have re-escalated, supporting the Gold price.
Traders are betting heavily on a Fed rate cut in both October and December.

Gold price (XAU/USD) extends its upside to near $4,165 during the early Asian session on Wednesday. The precious metal edges higher as traders flock to safe-haven assets amid trade tensions and expectations of a US rate cut. Federal Reserve (Fed) officials are set to speak later on Wednesday, including Stephen Miran, Christopher Waller and Jeff Schmid.

Renewed trade tensions between the United States (US) and China reignite safe-haven demand. US Trade Representative Jamieson Greer said on Tuesday that the US President Donald Trump could slap China with 100% tariffs on November 1 or sooner, depending on Beijing’s next action in a dispute over rare earths.

The US and China will begin charging additional port fees on ocean shipping companies on Tuesday, affecting everything from holiday toys to crude oil, turning the high seas into a critical battlefield in the world's two largest economies' trade war. The US is scheduled to start collecting fees on October 14.

The yellow metal also receives support from growing expectations of Fed rate cuts. Fed Chair Jerome Powell said that the Fed is on track to deliver another quarter-point interest-rate cut later in the October policy meeting, even as a government shutdown significantly reduces its read on the economy.

Markets are currently pricing in an almost certain 25 basis points (bps) rate cut at the Fed’s October meeting, with another reduction expected in December, according to the CME FedWatch tool. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

Gold traders will keep an eye on the Fedspeak later on Wednesday for some hints about the US interest rate path. Any surprise hawkish remarks from Fed officials could lift the US Dollar (USD) and undermine the USD-denominated commodity price in the near term.

Gold FAQs

Why do people invest in Gold?

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.

Who buys the most Gold?

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.

How is Gold correlated with other assets?

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.

What does the price of Gold depend on?

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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