Gold Price Forecast: XAU/USD trades firmly near $3,650 on firm Fed dovish bets
- Gold price holds onto recent rally near $3,650 amid firm expectations that the Fed will cut interest rates next week.
- Traders raise Fed dovish bets amid growing downside labor market risks.
- The US inflation grew at a faster pace in August.
Gold price (XAU/USD) demonstrates strength near its all-time high around $3,650 during the European trading session on Friday. The precious metal trades firmly as the Federal Reserve (Fed) seems certain to cut interest rates in the monetary policy meeting on Wednesday.
According to the CME FedWatch tool, traders see a 7.5% chance that the Fed will cut interest rates by 50 basis points (bps) to 3.75%-4.00% on September 17, while the rest point a standard 25-bps interest rate reduction.
Lower interest rates by the Fed bode well for non-yielding assets, such as Gold.
Fed dovish expectations have intensified due to escalating United States (US) labor market concerns. The US Department of Labor showed on Thursday that Initial Jobless Claims rose to 263K in the week ending September 5, the highest level seen in four years.
Meanwhile, rising inflationary pressures are also supporting the Gold price. Precious metals, such as Gold, perform strongly in a high inflation environment.
On Thursday, the US Consumer Price Index (CPI) report for August showed that the headline inflation rose at an annual pace of 2.9%, as expected, the highest level seen since February.
In Friday’s session, investors will focus on the preliminary US Michigan Consumer Sentiment Index (CSI) and Consumer Inflation Expectations data for September, which will be published at 14:00 GMT.
Gold technical analysis
Gold price holds into gains near a fresh all-time high around $3,650. However, the upward-sloping 20-day Exponential Moving Average (EMA) near $3,517.70 suggests that the overall trend remains bullish.
The 14-day Relative Strength Index (RSI) jumps to near overbought levels around 80.00. Therefore, a corrective move looks likely.
On the downside, the April 22 high of $3,500 will remain a key support level for the Gold. Looking up, the round level of $3,700 will act as key resistance for the pair.
Gold daily chart
Gold FAQs
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.
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.
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.
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.