Gold Price Forecast: XAU/USD extends upside to near $4,150 as ADP report shows US job losses

POPULAR ARTICLES

Gold price jumps to over a two-week high near $4,140 in Wednesday’s early Asian session.
US companies shed jobs in late October.
The reopening of the US government could weigh on the Gold price, a safe-haven asset.

Gold price (XAU/USD) extends the rally to around $4,140 during the early Asian session on Wednesday. The precious metal gains momentum on further bets of a rate cut by the US Federal Reserve (Fed) by year-end. Traders will keep an eye on the Fedspeak later on Wednesday. The Fed’s John Williams, Anna Paulson, Christopher Waller, Raphael Bostic, Stephen Miran and Susan Collins are scheduled to speak.

The Automatic Data Processing (ADP) revealed on Tuesday that for the four weeks ended October 25, private sector job creation was down more than 11,250 on average per week. The data stands in contrast to the October gains that the firm reported last week, indicating some labor market weakening. Weaker-than-expected employment data from the ADP reignited speculation that the Fed could deliver additional easing, which supports the yellow metal.

Markets are currently priced in nearly a 68% chance of a 25 basis points (bps) rate cut by the Fed in December, with odds rising to about 80% by January, according to the CME FedWatch tool. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

Traders will closely monitor the developments surrounding a potential deal to end the US government shutdown. Signs that a resolution to the US government shutdown is nearing could undermine safe-haven assets like Gold. A record US government shutdown is on a path to end as soon as Wednesday after the Senate passed a temporary funding measure backed by a group of eight centrist Democrats, Bloomberg reported late Tuesday. The spending package would keep most of the government open through January 30.

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.