Gold Price Forecast: XAU/USD gains momentum to near $5,050 amid geopolitical risks, Fed uncertainty

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Gold price (XAU/USD) extends its upside to around $5,050 during the early Asian session on Tuesday. The precious metal gains momentum amid growing concerns about financial and geopolitical uncertainty. The US ADP Employment Change and Consumer Confidence reports will be published later on Tuesday.

Gold price gains traction to near $5,050 in Tuesday’s early Asian session.
Geopolitical risks and uncertainty boost the safe-haven assets such as Gold.
The Fed interest rate decision will be in the spotlight on Wednesday, with no change in rate expected.

Traders rushed to the safe-haven asset as concern spread that US President Donald Trump is upending relations with key allies, from Europe to Canada. Trump on Saturday threatened to slap 100% tariffs on Canadian goods if the country strikes a trade deal with China, raising fears of a renewed trade war.

Furthermore, concerns over the Federal Reserve (Fed) independence might contribute to the yellow metal’s upside. Traders await Trump’s pick for the next Fed Chair after Trump said he has finished interviewing candidates. A more dovish chair would increase bets on further interest-rate cuts this year, which could lift the Gold price. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

The Fed interest rate decision will take center stage on Wednesday. The US central bank is widely expected to hold its benchmark rate steady at the 3.50% to 3.75% target range. Traders will closely monitor Fed Chair Jerome Powell’s remarks following the policy meeting, as his insights could provide important clues for the months ahead. Nonetheless, if Powell delivers hawkish comments, this could provide some support to the US dollar (USD) and weigh on 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.