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Gold price advances to fresh record high amid hopes for an oversized Fed rate-cut

  • Gold price gains some follow-through traction on Friday and hits a fresh record high.
  • Rising bets for a larger Fed rate cut weigh on the USD and boost the precious metal.
  • Geopolitical risks further contribute to drive flows towards the safe-haven XAU/USD.

Gold price (XAU/USD) touched a fresh all-time peak, around the $2,563-2,564 region during the Asian session on Friday amid expectations for a more aggressive policy easing by the Federal Reserve (Fed). The softer-than-expected US Producer Price Index (PPI) report released on Thursday provided further evidence that inflation was subsiding and lifted bets for a larger, 50-basis points (bps) Fed rate cut move at the next policy meeting on September 17-18. This keeps the US Treasury bond yields depressed near the 2024 low and drags the US Dollar (USD) to a fresh weekly trough, which, in turn, is seen as a key factor driving flows towards the non-yielding yellow metal.

Apart from this, geopolitical risks stemming from the ongoing conflicts in the Middle East and the protracted Russia-Ukraine war further underpin demand for the traditional safe-haven Gold price. With the latest leg up, the XAU/USD confirms a breakout through a multi-week-old trading range and seems poised to prolong the recent well-established uptrend. Investors, however, might refrain from placing fresh bullish bets and prefer to move to the sidelines ahead of next week’s key central bank event risks – the highly-anticipated Fed decision on Wednesday and the Bank of Japan (BoJ) meeting on Friday. Nevertheless, the metal remains on track to register strong weekly gains. 

Daily Digest Market Movers: Gold price is underpinned by 50-bps Fed rate cut bets and geopolitical tensions

  • Rising bets for a larger interest rate cut by the Federal Reserve, along with geopolitical risks, lift the Gold price to a fresh all-time high on Friday and confirm a bullish breakout through a multi-week-old trading range.
  • The US Bureau of Labor Statistics reported on Thursday that the annual headline Producer Price Index (PPI) rose 1.7% against estimates of 1.8% and the previous month’s reading was revised down to 2.1% from 2.2%.
  • Adding to this, the core PPI, which excludes volatile food and energy prices, came in at 2.4% YoY, also missing expectations for a reading of 2.5% and further pointing to signs of easing inflationary pressures in the US. 
  • Separately, data published by the US Department of Labor (DoL) showed that the number of individuals who applied for unemployment insurance benefits for the first time rose to 230K in the week ending September 7.
  • According to the CME Group’s FedWatch Tool, market players are now pricing in over a 40% chance that the US central bank will lower borrowing costs by 50-basis points at the end of a two-day meeting next Wednesday. 
  • Israel intensified airstrikes on Iranian-linked targets in Syria, while Hamas and Hezbollah pounded northern Israel on September 11 in one of the largest aerial attacks, fueling concerns over a wider conflict in the Middle East.
  • Russian President Vladimir Putin warned on Friday that he would regard an agreement to allow Ukraine to strike targets inside Russia with Western-supplied missiles as tantamount to NATO directly entering the war.
  • Investors now look forward to the release of the Preliminary Michigan US Consumer Sentiment Index to grab short-term opportunities around the XAU/USD, which remains on track to register strong weekly gains.

Technical Outlook: Gold price could extend uptrend to an upper ascending channel boundary

From a technical perspective, the recent move up from the June swing low constitutes the formation of an ascending channel and points to a well-established uptrend. Moreover, Thursday’s close above the $2,525-2,526 supply zone and a subsequent move beyond the previous all-time peak, near the $2,531-2,532 area was seen as a fresh trigger for bullish traders. With oscillators on the daily chart holding in positive territory and still away from being in the overbought zone, the Gold price seems poised to climb further towards challenging the trend-channel resistance, currently pegged just ahead of the $2,600 mark. The latter should act as a strong barrier ahead of the FOMC meeting next week.

On the flip side, any meaningful corrective fall is likely to attract fresh buyers near the $2,530-2,525 resistance breakpoint. This should help limit the downside near the $2,500 psychological mark, which should now act as a strong base for the Gold price and a key pivotal point for short-term traders. That said, some follow-through selling, leading to a further decline below the weekly low, around the $2,485 region, could drag the XAU/USD to the $2,470 horizontal support en route to the $2,457-2,456 confluence. The latter comprises the lower boundary of the aforementioned channel and the 50-day Simple Moving Average (SMA), which if broken decisively might shift the near-term bias in favor of bearish traders.

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.