Gold Price Forecast: XAU/USD surges to fresh record high above $5,200 ahead of Fed rate decision

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Gold price jumps to an all-time high near $5,220 in Wednesday’s Asian session.
Trump said he was not concerned about the US Dollar's recent drop.
The Fed is expected to leave the federal funds rate unchanged at its January meeting on Wednesday.

Gold price (XAU/USD) rises to near a fresh record high around $5,220 during the Asian trading hours on Wednesday. The precious metal extends its upside amid a weaker US Dollar (USD), ongoing geopolitical tensions and economic uncertainty. Traders brace for the Federal Reserve (Fed) interest rate decision later on Wednesday for fresh impetus.

US President Donald Trump said on Tuesday that the value of the USD is great when asked whether he thought it had declined too much. His remarks dragged the US Dollar Index (DXY) lower to its lowest level since February 2022. This, in turn, provides some support to the USD-denominated commodity price, such as Gold.

Additionally, traders seek protection against global instability and trade war threats, boosting the safe-haven demand. Earlier in January, Trump had threatened to take control of Greenland, slap more tariffs on European nations, move to criminally indict Fed Chair Jerome Powell, and oversee an operation to seize the president of Venezuela. On Saturday, he threatened to impose 100% tariffs on Canadian goods if the country were to strike a trade deal with China.

The US central bank is widely anticipated to keep the federal funds rate in its current range of 3.50% to 3.75%. The pause would come after the Fed lowered its benchmark rate at three consecutive meetings late last year. Traders will closely watch Fed Chair Jerome Powell’s remarks at the press conference for more cues regarding future monetary policy. Any hawkish comments from Fed officials could help limit the USD’s losses and weigh on the Gold price in the near term.

Risk sentiment FAQs

What do the terms"risk-on" and "risk-off" mean when referring to sentiment in financial markets?

In the world of financial jargon the two widely used terms “risk-on” and “risk off'' refer to the level of risk that investors are willing to stomach during the period referenced. In a “risk-on” market, investors are optimistic about the future and more willing to buy risky assets. In a “risk-off” market investors start to ‘play it safe’ because they are worried about the future, and therefore buy less risky assets that are more certain of bringing a return, even if it is relatively modest.

What are the key assets to track to understand risk sentiment dynamics?

Typically, during periods of “risk-on”, stock markets will rise, most commodities – except Gold – will also gain in value, since they benefit from a positive growth outlook. The currencies of nations that are heavy commodity exporters strengthen because of increased demand, and Cryptocurrencies rise. In a “risk-off” market, Bonds go up – especially major government Bonds – Gold shines, and safe-haven currencies such as the Japanese Yen, Swiss Franc and US Dollar all benefit.

Which currencies strengthen when sentiment is "risk-on"?

The Australian Dollar (AUD), the Canadian Dollar (CAD), the New Zealand Dollar (NZD) and minor FX like the Ruble (RUB) and the South African Rand (ZAR), all tend to rise in markets that are “risk-on”. This is because the economies of these currencies are heavily reliant on commodity exports for growth, and commodities tend to rise in price during risk-on periods. This is because investors foresee greater demand for raw materials in the future due to heightened economic activity.

Which currencies strengthen when sentiment is "risk-off"?

The major currencies that tend to rise during periods of “risk-off” are the US Dollar (USD), the Japanese Yen (JPY) and the Swiss Franc (CHF). The US Dollar, because it is the world’s reserve currency, and because in times of crisis investors buy US government debt, which is seen as safe because the largest economy in the world is unlikely to default. The Yen, from increased demand for Japanese government bonds, because a high proportion are held by domestic investors who are unlikely to dump them – even in a crisis. The Swiss Franc, because strict Swiss banking laws offer investors enhanced capital protection.