Gold XAU/USD drifts higher above $4,200 on Fed rate cut expectations

LONDON (December 7) Gold price (XAU/USD) trades in positive territory near $4,205 during the early Asian session on Monday. The precious metal edges higher as markets widely expect the Federal Reserve (Fed) to cut interest rates at its December meeting on Wednesday. 

Despite inflation remaining above the Fed's 2% target, recent data showing a cooling labour market has increased the likelihood of a rate cut to stimulate economic activity. The US central bank is anticipated to reduce its key interest rate by a quarter-percentage point on Wednesday amid a cooling labor market. Lower interest rates could reduce the opportunity cost of holding Gold, supporting the non-yielding precious metal.

Additionally, central bank demand for Gold might contribute to its upside. The People’s Bank of China (PBoC) added to its gold reserves for a 13th straight month, according to data released on Sunday. Bullion held by the Chinese central bank rose by 30,000 troy ounces last month, bringing the total to around 74.12 million troy ounces. 

US consumer sentiment improved in early December, with the index increasing to 53.3 in December from a final reading of 51.0 in November, according to the University of Michigan's Surveys of Consumers. This figure came in stronger than the expectation of 52.0.

The upbeat US economic data could boost the US Dollar (USD) and weigh on the USD-denominated commodity price. It’s worth noting that when the Greenback strengthens, gold becomes more expensive for holders of other currencies, which can decrease demand and undermine the Gold prices.

FXStreet