Gold Price Forecast: XAU/USD holds below $4,000 as Fed’s hawkish remarks lift US Dollar

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Gold price (XAU/USD) declines to around $4,000 during the early Asian session on Tuesday. The precious metal edges lower as traders dialed back bets for further Federal Reserve (Fed) rate cuts. The Fed’s Michelle Bowman is scheduled to speak later in the day.

Gold price trades in negative territory near $4,000 in Tuesday’s early Asian session.
Fed Chair Powell said another cut this year was "not a foregone conclusion.
The US ISM Manufacturing PMI fell to 48.7 in October, weaker than expected.

The US central bank last week cut interest rates for the second time this year, but Fed Chair Jerome Powell said another cut this year was "not a foregone conclusion." The hawkish remarks from the Fed officials drag the yellow metal lower. The US central bank lowered its benchmark overnight borrowing rate at its October meeting last week to a range of 3.75%-4.0%.

The markets are discounting a 70% odds that the Fed will cut the fed funds target range by 25 basis points (bps) at the December meeting. The markets are discounting an overall 82 bps rate reduction by the end of 2026 to 3.06% from the current effective federal funds rate of 3.88%.

However, the latest data showed the US manufacturing sector weakening last month. This, in turn, might weigh on the US Dollar (USD) and lift the USD-denominated commodity price. Data released by the Institute for Supply Management (ISM) on Monday showed that the US Manufacturing Purchasing Managers Index (PMI) fell to 48.7 in October from 49.1 in September. This figure came in weaker than the expectation of 49.5.

Traders brace for the US October ADP Employment Change data later on Wednesday. This report might offer some hints about the chances of an additional Fed interest rate cut this year. In case of the weaker-than-expected outcome, this could provide some support to the safe-haven assets like the Gold price.

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.