Gold Price Forecast: XAU/USD gains ground above $4,050 on Fed rate cut bets, US data awaited

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Gold price drifts higher to near $4,075 in Monday’s early Asian session.
Traders are now betting the Fed will cut rates again next month.
The US September PPI and Retail sales reports will be the highlights later on Tuesday.

Gold price (XAU/USD) trades in positive territory around $4,075 during the early Asia session on Monday. The precious metal edges higher as expectations for a Federal Reserve (Fed) rate cut rise after comments from John Williams. The US September Producer Price Index (PPI) and Retail Sales reports will be in the spotlight later on Tuesday.

New York Fed President John Williams said on Friday that the US central bank could still trim interest rates in the near term without jeopardizing its inflation goal. Markets are now pricing in nearly a 74% chance of a rate cut at the Fed's December meeting, up from 40% last week, according to the CME FedWatch tool. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

Meanwhile, other Fed officials maintained a hawkish stance, with Dallas Fed President Lorie Logan and Boston Fed President Susan Collins calling for leaving the policy rate on hold "for a time."

Traders will take more cues from the mixed economic signals and the delayed release of key inflation data. The US PPI inflation and Retail sales data are due on Tuesday. The headline 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 report period. Any signs of hotter inflation could dampen hopes for Fed rate cuts. This, in turn, 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.