Gold Price Forecast: XAU/USD edges lower below $4,200 amid worries about hawkish Fed rate cut

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Gold Price (XAU/USD) trades in negative territory around $4,195 during the early Asian session on Tuesday. The precious metal edges lower amid concerns that the US Federal Reserve (Fed) will adopt a hawkish tone in its rhetoric, despite delivering a rate cut on Wednesday.

Gold price loses ground to near $4,195 in Tuesday’s early Asian session.
Markets are pricing in a 90% chance of a 25 bps rate cut at December’s FOMC meeting.
Traders brace for the ADP Employment Change four-week average and JOLTS Job Openings reports later on Tuesday.

Markets widely expect a 25 basis points (bps) rate cut at the Fed’s December meeting, with traders seeing a 90% probability, up from about 66% in November, according to the CME FedWatch tool. Traders will closely monitor the press conference and a Summary of Economic Projections, or ‘dot-plot,’ for fresh impetus. If the US central bank delivers a "hawkish cut," this could support the US Dollar (USD) and weigh on the USD-denominated commodity price.

The market is waiting for the Fed decision and for more guidance on policy," said Peter Grant, vice president and senior metals strategist at Zaner Metals.

The US employment reports will be published on Tuesday ahead of the Fed interest rate decision. The ADP Employment Change four-week average and JOLTS Job Openings for September and October will be the highlights. In case of weaker-than-expected outcomes, this could boost the expectations of a US rate reduction, underpining the yellow metal. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

Meanwhile, uncertainty and escalating tensions could boost traditional safe-haven assets like the Gold price. Tensions are mounting once again between US President Donald Trump and Ukrainian President Volodymyr Zelenskyy after Trump accused Ukraine’s head of state of not even reading the US’s peace proposals yet, per CNBC.

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.