Gold Price Forecast: XAU/USD remains near all-time high around $3,900 as Fed dovish bets swell

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Gold price (XAU/USD) trades 0.35% higher to near $3,880 during the European trading session on Thursday, close to its all-time high of $3,895 posted on Wednesday.

Gold price trades firmly amid firm Fed dovish bets.
The US government shutdown and weakening job market have prompted the Fed’s interest rate expectations.
Headcounts in the US private sector labor force were reduced by 32K in September.

Gold price (XAU/USD) trades 0.35% higher to near $3,880 during the European trading session on Thursday, close to its all-time high of $3,895 posted on Wednesday. The yellow metal demonstrates strength as the United States (US) government shutdown has intensified speculation for more interest rate cuts by the Federal Reserve (Fed) this year.

According to the CME FedWatch tool, traders seem sure that the Fed will cut interest rates by 25 basis points (bps) to 3.75%-4.00% in the policy meeting later this month and see an 87% chance of lowering them again in the December meeting.

Theoretically, lower interest rates by the Fed bode well for non-yielding assets, such as Gold.

On Tuesday midnight, the White House announced the partial government closure as the stopgap bill failed to get approved in the House of Senate. According to a White House memo, the US Growth Domestic Product (GDP) could decline by $15 billion each week on Washington’s closure.

US President Donald Trump has held Democrats responsible for the shutdown and has attacked their priorities by freezing $26 billion in funding towards Democratic-leaning states, Reuters reported.

Another reason behind swelling Fed dovish bets is the weakening United States (US) job market conditions. The US ADP Employment Change report for September showed on Wednesday that the private labour force was reduced by 32K headcounts, which was expected to have seen a fresh addition of 50K workers.

Gold technical analysis

Gold price aims to reclaim the all-time high of $3,895 posted on Wednesday. The near-term trend of the Gold price remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around $3,717.20. The upward-sloping trendline from the August 22 low around $3,321.50 will act as key support for the Gold price.

The 14-day Relative Strength Index (RSI) oscillates inside the 60.00-80.00 range, suggesting a strong bullish momentum.

On the upside, the Gold price could extend its upside towards $4,000. Looking down, the 20-day EMA will act as key support.

Gold daily chart

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.