Gold Price Forecast: XAU/USD holds gains above $4,200 as weak US payrolls fuel rate cut bets

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Gold price (XAU/USD) posts modest gains near $4,210 during the early Asian trading hours on Thursday. The precious metal edges higher amid growing expectations of a US interest rate cut next week.

Gold price trades with mild gains around $4,210 in Thursday’s early Asian session.
Weaker US private payrolls data have boosted expectations of a US interest rate cut next week, supporting the Gold price.
Traders will take more cues from the US weekly Initial Jobless Claims data ahead of the delayed US PCE inflation report.

Gold price (XAU/USD) posts modest gains near $4,210 during the early Asian trading hours on Thursday. The precious metal edges higher amid growing expectations of a US interest rate cut next week. Traders will keep an eye on the release of the US weekly Initial Jobless Claims data, which is scheduled for release later on Thursday.

US private payrolls fell by 32,000 jobs in November, according to Automatic Data Processing (ADP) on Wednesday. This reading followed the 47,000 increase (revised from 42,000), weaker than the market expectation of a 5,000 growth. This report pointed to a weakening US labor market, which weighs on the Greenback and provides some support to the USD-denominated commodity price.

Traders increase their bets that the US Federal Reserve (Fed) will deliver a 25 basis points (bps) rate cut at the December policy meeting. Fed funds futures traders are now pricing in nearly an 89% chance of a rate reduction next week, up from 71% probability a week ago, according to the CME FedWatch Tool. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

The US weekly Initial Jobless Claims data will be in the spotlight on Thursday. The attention will shift to the delayed US September Personal Consumption Expenditures (PCE) inflation data later on Friday. The Fed’s preferred inflation gauge report could offer some hints about the US interest rate path. Any signs of hotter inflation in the US economy could lift the USD and undermine the yellow metal 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.