Gold price forecast (XAU/USD) continue to hold steady above $2,580 during the early Asian session on Monday. Gold surged to a record high of $2,586 last Friday, driven by growing anticipation of a possible Federal Reserve (Fed) rate cut. All eyes are now on the Federal Open Market Committee (FOMC) meeting this Wednesday.
Fed Rate Cut Expectations Driving Gold Prices
The anticipation of a rate cut by the Fed has strengthened gold’s position. With recent US economic data indicating a slowdown, investors are leaning towards safer assets like gold. When interest rates drop, the opportunity cost of holding non-interest-bearing assets like gold diminishes, making it more attractive to investors.
Currently, the financial markets are pricing in a 48% chance of a 25 basis point (bps) rate cut by the Fed at its September 17-18 meeting. There is also a 52% probability of a more significant 50 bps cut, as shown by the CME FedWatch Tool.
Alex Ebkarian, COO at Allegiance Gold, commented, “We are moving into a lower interest rate environment, which makes gold increasingly appealing. We might see more frequent cuts rather than a single significant reduction.”
Geopolitical Tensions Supporting Gold
In addition to rate cut speculations, rising geopolitical tensions in the Middle East have further boosted the demand for gold as a safe-haven asset. On Sunday, Israeli Prime Minister Benjamin Netanyahu warned that Yemen’s Houthis would face repercussions after a missile launched by the group landed in central Israel, according to the BBC.
Such geopolitical risks often drive up gold prices, as investors seek safer assets during uncertain times.
Chinese Economic Slowdown Impact
While gold prices continue to rise, the economic slowdown in China could limit further gains. China, being the largest producer and consumer of gold, plays a significant role in shaping the market. Recent economic data from China showed weaker-than-expected retail sales and industrial production figures for August. Industrial output grew at the slowest pace since March, and retail sales experienced their second-slowest month of the year.
The weaker performance of China’s economy may cap the upside for gold prices in the short term.
Conclusion
The gold price forecast remains positive, with the XAU/USD continuing its upward trend above $2,550. While market attention is fixed on the Fed’s upcoming rate decision, geopolitical factors and China’s economic performance may also influence gold’s movement. Investors should monitor these developments closely for further insights.
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