Gold Price Forecast: XAU/USD extends the rally above $4,350 amid safe-haven flows

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Gold price rises to near $4,365 in Friday’s early Asian session.
Fed rate cut bets, escalating concerns over US-China trade tensions support the Gold price.
Easing concerns over geopolitical risks might cap the precious metal’s upside.

Gold price (XAU/USD) extends its upside to around $4,365 during the early Asian session on Friday. The precious metal holds positive ground after reaching a record high of $4,380 in the previous session. A fear of a prolonged US government shutdown, growing bets of additional US interest rate cuts, and US-China trade tensions support the yellow metal. Traders will keep an eye on the Fedspeak later on Friday for fresh impetus.

There are also growing worries about the ongoing US government shutdown, which weighs on the US Dollar (USD) and underpins the USD-denominated commodity price. The federal shutdown has entered its third week after the Senate failed to advance legislation that would restore funding. US Treasury official said that a US government shutdown could cost the US economy up to $15 billion a week in lost output.

Rate cut bets by the US Federal Reserve (Fed) also fuel the momentum. Fed’s Powell said on Tuesday that a sharp slowdown in hiring poses a growing risk to the US economy, suggesting that the US central bank will likely cut its key interest rate twice more this year.

Additionally, Fed Governor Christopher Waller noted that he is on board with another interest rate reduction at the Fed's policy meeting later this month, citing the mixed readings on the state of the job market. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

Brewing US-China trade tensions contribute to the yellow metal’s upside. US President Donald Trump said Washington was considering cutting some trade ties with China after both countries began imposing additional port fees on ships carrying cargo.

On the other hand, easing concerns over geopolitical risks could undermine the safe-haven assets like Gold. Trump said late Thursday that he and Russian President Vladimir Putin agreed to another summit to discuss ending the war in Ukraine, one day before Trump was due to speak with Ukrainian leader Volodymyr Zelenskiy, per Bloomberg.

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.