Gold Price Forecast: XAU/USD edges higher to near $3,600 as weak NFP data fuel Fed rate cut bets

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The Gold price (XAU/USD) extends the rally to near $3,590 during the early Asian session on Monday. The precious metal edges higher near an all-time high as soft US jobs data further cemented expectations for a US Federal Reserve (Fed) rate cut later this month.

Gold price drifts higher to around $3,590 in Monday’s early Asian session.
Weak jobs data have fueled Fed rate cut bets.
The Chinese central bank bought gold in August for the 10th consecutive month.

The US Nonfarm Payrolls (NFP) report on Friday showed a slowdown in hiring in August, while the Unemployment Rate rose to the highest level since 2021, confirming that labor market conditions in the world’s biggest economy are slumping. These reports boost Fed rate cut expectations, which provides some support to the precious metal price, as lower interest rates could reduce the opportunity cost of holding Gold.

Following the data, traders are now almost certain that the Fed will lower rates at its upcoming meeting on September 17, with an 84% chance of it being a 25 basis points (bps) cut and a 16% possibility of a more aggressive 50 bps reduction.

Additionally, rising demand from major central banks contributes to the upside. Official data showed on Sunday that the People’s Bank of China (PBoC) added gold to its reserves in August, extending purchases of bullion into a 10th straight month. China’s gold reserves stood at 74.02 million fine troy ounces at the end of August, up from 73.96 million at the end of July.

Traders will take more cues from the US Producer Price Index (PPI) for August, which is due later on Wednesday. If the report shows hotter-than-expected outcomes, this could boost 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.