Gold Price Forecast: XAU/USD Breaks $3,500 With Fed Cuts in Sight

Gold (XAU/USD) Breaks Records Above $3,500 as Fed Cuts and Political Risks Fuel Rally

The gold market is surging with an intensity not seen in years, smashing through the $3,500 level and printing a new all-time record. Spot gold (XAU/USD) peaked at $3,516.31 per ounce during Asian hours, surpassing April’s previous high of $3,500.05, before stabilizing near $3,491.47 in New York, still higher on the day. U.S. gold futures for December delivery advanced to $3,554.30, while intraday trades briefly touched $3,580. With prices up more than 33% year-to-date, bullion has doubled since early 2023, cementing itself as the market’s strongest performing safe-haven asset.

Fed Policy Uncertainty and Trump’s Pressure on Independence

The rally is underpinned by the conviction that the Federal Reserve is preparing its first rate cut in nine months. Markets are pricing a 90% probability of a 25 bps cut on September 17, with some speculation of a 50 bps move if nonfarm payrolls later this week miss estimates. Trump’s repeated attacks on Fed Chair Jerome Powell and his attempt to oust Governor Lisa Cook have escalated fears of compromised independence. A federal appeals court ruling that Trump’s global tariffs were illegally imposed has further rattled confidence in the U.S. economic outlook. Analysts warn that the political overhang, combined with inflationary risks if the Fed bows to pressure, has created a near-perfect environment for higher gold.

Central Banks and Institutional Allocations Accelerate Flows

Beyond macro policy, structural demand from sovereign buyers is reinforcing the surge. Central banks in India, China, Turkey, and Poland have been expanding reserves, with 2024 marking the year gold overtook the euro as the second-largest global reserve asset after the dollar. This “de-dollarization” trend continues into 2025, with foreign central banks’ U.S. Treasury allocations shrinking while gold holdings rise. SPDR Gold Trust (GLD), the world’s largest gold-backed ETF, reported a 1.01% increase in holdings last week to 977.68 tons, its highest since 2022. Indian pension funds are also seeking approval to add gold ETFs to portfolios, a sign that institutional allocations remain strong even at record levels.

Trade Conflict, Dollar Weakness, and Geopolitical Uncertainty Drive Demand

Gold’s explosive rise reflects a confluence of geopolitical and macroeconomic risks. Trump’s escalating tariffs and rhetoric against trading partners have reignited global trade tensions, while the dollar index languishes near one-month lows. With the greenback under pressure, overseas buyers find gold cheaper, reinforcing momentum. European bond markets mirror this trend, with U.K. 30-year gilt yields hitting a 27-year high, French 30-year yields at a 16-year high, and German 30-year bonds at their costliest since 2011. Investors are fleeing sovereign debt, turning instead to gold and silver as defensive hedges. Geopolitical backdrops—from Russia’s war in Ukraine to ongoing Middle East volatility—layer additional urgency for diversification into bullion.

Seasonal Strength, ETF Inflows, and Consumer Buying in Asia

The timing of this breakout coincides with gold’s seasonally strongest demand window. Analysts at Standard Chartered project average prices of $3,500/oz in Q3 and $3,700/oz in Q4, underscoring that momentum may extend into year-end. China and India, historically price-sensitive, are seeing jewelry buyers pivot into investment-grade coins and bars instead of exiting at high prices. This shift keeps Asian consumption steady even at elevated levels. Combined with robust ETF inflows, the demand profile suggests current prices are not discouraging participation but rather reinforcing gold’s role as the asset of choice during uncertainty.

Silver and Precious Metals Follow Gold Higher

The surge in gold is mirrored by strength in silver, platinum, and palladium. Silver (XAG/USD) touched $40.64/oz, its highest since 2011, before settling near $40.48. Platinum trades at $1,389.75 and palladium at $1,121.75, both lower on the day but still supported by safe-haven flows. With the gold-silver ratio still above its historical range of 60–80, analysts argue silver has greater upside potential in relative terms. The synchronized rise in precious metals reinforces broad investor hedging strategies against monetary and geopolitical shocks.

Forecasts Point to $3,700 and Potential $4,000 in 2026

Strategists from UBS, BNP Paribas, and Goldman Sachs see this as more than a seasonal move. Projections range from $3,700 by mid-2026 to $4,000 per ounce if Fed rate cuts multiply or political crises deepen. BNP’s David Wilson stressed that Trump’s overt challenge to Fed independence combined with U.S. fiscal deficits provides the “perfect setup” for further gold appreciation. Goldman Sachs highlighted ETF inflows as the hidden accelerant that could sustain the rally, projecting $4,000 in the next 12 months. The resilience of gold above $3,500 suggests markets are already positioning for this upper range.

Jobs Report and Fed Decision Will Be Pivotal

Friday’s nonfarm payrolls is now the most critical data point. A weak print could reignite speculation of a 50 bps cut, fueling additional gains in XAU/USD. Even without such an aggressive move, the structural bid from central banks, ETF flows, and retail demand provides a strong base. Investors remain highly sensitive to Trump’s next move on Fed governance, with the market interpreting every headline as another justification to add bullion exposure.

Buy, Sell, or Hold Verdict

With spot prices near $3,491.47 and futures around $3,554.30, gold has broken key technical resistance and entered uncharted territory. Strong central bank buying, ETF inflows, and macro uncertainty support continued upside. Risks lie in a potential Fed surprise of no cut, which could temporarily cap momentum, but structural demand and political instability provide a solid floor above $3,400.

Verdict: Buy. Gold’s trajectory toward $3,700 by Q4 2025 and possible tests of $4,000 in 2026 positions XAU/USD as the strongest hedge in global markets, with silver offering leveraged upside in parallel.

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