Gold (XAUUSD) Price Forecast: Bulls Target Breakout Above $3674.70 as Fed Cut Looms
News Summary
Gold prices are holding near record highs, trading around $3643 as the market awaits a Federal Reserve rate cut and watches for a breakout above the key $3674.70 level. Expectations for a Fed rate cut are growing following weak U.S. labor data, including a significant downward revision of 911,000 jobs from prior reports. Fed funds futures are now fully pricing in a 25-basis-point cut at the September 17 meeting, while expectations for a larger 50-basis-point move are fading. Gold ETFs have seen renewed inflows, signaling strong institutional demand, with UBS raising its gold price forecast to $3,900/oz. Globally, the People's Bank of China (PBOC) is exploring changes to gold trade policy to streamline import and export licensing, which could eventually boost liquidity and import volumes in one of the world's top buyers.
Background
It is currently 2025, and Donald J. Trump has been re-elected as the US President. In the global economic landscape, despite persistent inflationary pressures, the U.S. labor market has shown recent signs of weakness, including increased jobless claims, significant downward revisions to employment data, and softer-than-expected payroll growth. This presents the Federal Reserve with the challenge of balancing inflation containment with economic growth support. During the Trump administration, fiscal policy may lean towards expansionary measures, potentially adding further pressure on the Fed's monetary policy trajectory. In this environment, gold's appeal as a safe-haven asset and inflation hedge has been further highlighted, with its price reaching all-time highs. Adjustments to gold reserves and trade policies by major central banks, particularly the People's Bank of China, also reflect deeper considerations regarding the global monetary system and financial stability.
In-Depth AI Insights
What are the deeper drivers behind gold's record-breaking ascent, beyond just short-term Fed rate cut expectations? - Declining Real Rates: Even if nominal rates remain elevated, a decline in real interest rates – when inflation expectations hold steady or rise – reduces the opportunity cost of holding non-yielding gold, thus supporting its price. - Persistent Safe-Haven Demand: Global geopolitical tensions, particularly the potential for heightened trade and strategic uncertainties during Trump's second term, continue to drive safe-haven demand for gold. - Central Bank De-dollarization: Ongoing gold accumulation by multiple central banks, including China, represents a long-term strategy to diversify reserves and reduce reliance on the U.S. dollar, providing structural support to gold prices. - Institutional Inflation Hedge: Amidst expansionary fiscal policies and potential supply chain disruptions, institutional investors view gold as an effective hedge against persistent inflation risks. Considering the Trump administration's economic policy leanings, what unconventional impacts might the Fed's rate cut path and gold's long-term trajectory face? - Fed Independence Under Scrutiny: The Trump administration may exert pressure on the Federal Reserve for further rate cuts to stimulate economic growth, potentially leading to a decline in market confidence in the Fed's independence, thereby enhancing gold's appeal. - Fiscal Stimulus and Dollar Weakness: Should the Trump administration pursue aggressive fiscal stimulus measures, it could lead to further weakening of the U.S. dollar, making dollar-denominated gold more attractive to non-dollar buyers. - Trade Wars and Supply Chain Reshaping: Potential protectionist trade policies could exacerbate global economic uncertainty and trigger supply chain reshaping, prompting investors to seek traditional safe-haven assets like gold. - Real Rate Volatility: Expansionary fiscal policy could lead to rising inflation expectations, and if the Fed's response is perceived as inadequate, real rates could fall further, providing additional tailwinds for gold. What are the strategic implications of the People's Bank of China (PBOC) seeking to streamline gold import/export licensing for the global monetary system and the de-dollarization process? - Strengthening RMB's Gold Anchor: By improving gold's liquidity and accessibility, China may aim to provide a stronger physical backing for its currency, thereby enhancing the RMB's standing in global trade and finance. - Advancing De-dollarization Strategy: Increasing the role of gold in central bank and commercial transactions helps reduce reliance on the U.S. dollar as the primary reserve and transaction currency, aligning with China's long-term de-dollarization efforts. - Boosting China's Global Gold Market Influence: As the world's largest gold producer and consumer, streamlined gold trade would grant China greater leverage in pricing and market structure, potentially challenging Western-dominated gold markets. - Hedging Geopolitical Risks: Amidst ongoing tensions with the U.S., increased holdings and more flexible management of gold reserves can be seen as a safeguard of financial sovereignty and a hedge against potential sanctions.