Gold eyes $3,800 as Fed caution and global risks drive flows

LONDON (September 23) Gold (XAU/USD) pushes deeper into uncharted territory on Tuesday, climbing to another record high as expectations for further Federal Reserve (Fed) interest rate cuts and lingering geopolitical risks underpin steady safe-haven demand. At the time of writing, XAU/USD is consolidating gains near $3,785, after hitting a fresh all-time high of $3,791 earlier in the day.

Market focus remains on the Fed’s monetary policy outlook following its 25-basis-point (bps) cut last week, with traders pricing in the likelihood of two more reductions before year-end. Lower borrowing costs typically weaken the US Dollar (USD) and Treasury yields, reducing the opportunity cost of holding Gold.

Still, comments from Fed officials on Monday suggested a cautious stance toward further easing, with only Governor Stephen Miran arguing for deeper cuts, warning that policy is “well into restrictive territory” and risks unnecessary layoffs unless short-term rates are lowered more aggressively.

Traders now turn their attention to Fed Chair Jerome Powell, who is scheduled to speak later on Tuesday at 16:35 GMT, for fresh policy cues. Although no major data have been released since last week’s press conference, his message is expected to remain broadly in line with earlier remarks.

Market movers: Fed caution and geopolitical risks keep Gold in demand

• Fed’s Michelle W. Bowman said on Tuesday that last week’s quarter-point cut should be viewed as a first step toward a more neutral stance if the economy evolves as expected. She warned the Fed risks falling behind the curve on labor market weakness, stressing that policy may need to adjust more quickly if conditions deteriorate, and noted the job market could soften rapidly in the months ahead.
• In remarks delivered Tuesday, Fed’s Austan Goolsbee said rates could come down if inflation continues toward target but cautioned against moving too aggressively. He dismissed the idea of 50 bps cuts, describing policy as only mildly restrictive and estimating neutral to be 100-125 bps below current levels.
• In his first policy speech since joining the Fed, Governor Stephen Miran said at the Economic Club of New York on Monday that it would be “better to move to neutral quickly” and called for a series of 50 bps cuts to recalibrate policy. He emphasized that, unless conditions shift, he will continue to press for larger reductions and is prepared to dissent again if needed.
• However, not all policymakers share Miran’s sense of urgency. St. Louis Fed President Alberto Musalem argued that the economy has only limited room for additional easing, while Cleveland Fed President Beth Hammack stressed the need to tread carefully to avoid reigniting price pressure. Atlanta Fed President Raphael Bostic also downplayed the case for more immediate action, saying he sees little justification for further cuts at this stage.
• Deutsche Bank noted that Monday’s Fed commentary prompted investors to slightly scale back easing bets. Fed funds futures at Monday’s settlement priced in 43 bps of cuts by year-end, compared with 45 bps on Friday. According to the CME FedWatch Tool, markets assign nearly a 92% probability of another 25 bps cut in October, while the odds of an additional move in December stand around 73%.
• Geopolitical tensions remain elevated across multiple regions. Russia-NATO frictions have escalated following airspace violations over Eastern Europe, while Iran faces renewed pressure over its nuclear program, and persistent instability in the Middle East is all reinforcing safe-haven flows into Gold and shaping risk sentiment across markets.
• Bloomberg reported on Tuesday that China is courting foreign central banks to store part of their gold reserves in the country through the Shanghai Gold Exchange. The initiative aims to boost Beijing’s global influence in the Bullion market.

FXStreet