Gold Price Forecast: XAU/USD rises to near $4,150 as Fed rate cut bets grow

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Gold price climbs to near $4,140 in Tuesday’s early Asian session.
Bets of a Fed rate cut next month stand at 79%, the CME FedWatch tool showed.
The US ADP Employment Change, Retail Sales, and Producer Price reports will be the highlights on Tuesday.

Gold price (XAU/USD) attracts some buyers to around $4,140 during the early Asian session on Tuesday. The precious metal rises on growing expectations of a US Federal Reserve (Fed) interest rate cut in the December policy meeting. Traders await the release of the US ADP Employment Change Weekly, Retail Sales, and Producer Price reports, which are due later on Tuesday.

Several Fed officials signalled support for a December rate reduction, which underpins the yellow metal. Fed Governor Christopher Waller said on Monday that available data showed the US job market remains weak enough to warrant another quarter-point rate cut at the Fed's December policy meeting. Meanwhile, San Francisco Fed President Mary Daly stated that the US central bank should cut the rates as the labor market has become increasingly vulnerable.

"The market is increasingly getting convinced that the U.S. Federal Reserve is on track to cut interest rates in December," said Bart Melek, head of commodity strategies at TD Securities. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal. Markets are now pricing in nearly an 80% chance of a Fed interest rate cut of a quarter-point next month, up from 30% odds before their remarks, according to the CME FedWatch tool.

Traders brace for fresh US economic data later on Tuesday for further clues on the monetary policy. The US Producer Price Index (PPI) is expected to show an increase of 0.3% MoM in September, while the Retail Sales are projected to show a rise of 0.4% MoM during the same period. If the reports show hotter-than-expected outcomes, this could lift the US Dollar (USD) and weigh on the USD-denominated commodity 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.