Gold Price Forecast: XAU/USD extends the rally above $4,200 as Fed rate cut bets grow

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Gold price drifts higher to around $4,230 in Monday’s early Asian session.
Rising Fed rate cut bets support the Gold price.
The potential of a Ukraine peace deal might cap the yellow metal’s upside.

Gold price (XAU/USD) trades in positive territory near $4,230 during the early Asian trading hours on Monday. The precious metal edges higher amid growing speculation that the US Federal Reserve (Fed) may cut interest rates in December. Traders await the release of the US ISM Manufacturing Purchasing Managers Index (PMI) report for November later on Monday.

Expectations of continued monetary policy easing by the Fed have been a primary driver of the yellow metal price. Traders increase their bets on a December rate cut following recent weaker US economic data and dovish remarks from Fed policymakers. According to the CME FedWatch Tool, financial markets are now pricing in nearly an 87% probability of a rate cut at the conclusion of the Fed's December 9-10 meeting, up from a 71% chance a week ago. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

The US ISM Manufacturing PMI will be published later in the day, which is expected to ease slightly to 48.6 in November from 48.7 in October. In case of a stronger-than-expected outcome, this could lift the US Dollar (USD) and weigh on the USD-denominated commodity price in the near term.

Optimism surrounding peace talks between the United States and Ukraine could reduce gold's appeal as a safe-haven asset. The Guardian reported on Sunday that US Secretary of State Marco Rubio said a meeting between the US and Ukrainian officials was "very productive," but more work remains to be done towards ending Russia's war in Ukraine. US President Donald Trump’s special envoy, Steve Witkoff, will travel to Moscow to meet Vladimir Putin later this week.

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.