Gold Price Forecast: XAU/USD holds steady below $4,100 as Fed rate cut bets fade

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Gold price trades flat around $4,080 in Friday’s early Asian session.
A stronger-than-expected US employment report dampened prospects for a Fed rate cut in December.
Safe-haven flows and central bank buying could support the Gold price.

Gold price (XAU/USD) holds steady near $4,080 during the early Asian session on Friday. The upside for the precious metal might be limited as strong US jobs data dims Federal Reserve (Fed) rate cut expectations. Traders brace for the preliminary reading of the US S&P Global Purchasing Managers Index (PMI) and Michigan Consumer Sentiment Index report, which will be released later on Friday.

Nonfarm Payrolls (NFP) rose by 119,000 jobs in September after a downwardly revised 4,000 drop in August, according to the Bureau of Labor Statistics (BLS) on Thursday. This reading came in better than the estimation of 50,000. The Unemployment Rate in the US climbed to 4.4% in September from 4.3% in August. The report was delayed due to the US government shutdown.

Investors scaled back expectations for an interest rate cut from the Fed next month following a solid job report. This, in turn, lifts the US Dollar (USD) and weighs on the USD-denominated commodity price. Markets are now pricing in nearly a 39% probability of a 25 basis points (bps) rate cut at the Fed's December meeting, according to the CME FedWatch tool.

"This (data) essentially confirms what the Fed discussed in October — a slowing yet stable jobs market. A December rate cut now appears increasingly unlikely," adding pressure to gold, said Peter Grant, vice president and senior metals strategist at Zaner Metals.

Traders will take more cues from the US S&P Global PMI reports later on Friday. Any signs of weakness in the US economy could boost the Gold price, a traditional safe-haven asset. Furthermore, ongoing gold buying from major central banks also supports the yellow metal. The People's Bank of China (PBOC) added 1.2 tonnes of gold in September and reported a purchase for the 12th consecutive month in October, officials said.

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.