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Gold price stands tall near record high ahead of the key FOMC meeting this week

  • Gold price trades with a mild positive bias near the all-time peak touched on Friday.
  • Rising bets for a 50 bps Fed rate cut later this month continue to act as a tailwind.
  • Bulls now await this week’s key central bank event risks before placing fresh bets.

Gold price (XAU/USD) holds steady near the all-time high, around the $2,580 region during the Asian session on Monday amid relatively thin trading volumes on the back of a holiday in China and Japan. Furthermore, traders opt to wait on the sidelines ahead of this week’s key central bank event risks, especially the outcome of a two-day Federal Open Market Committee (FOMC) meeting. The Federal Reserve (Fed) is scheduled to announce its decision on Wednesday, which will be followed by the Bank of England (BoE) and the Bank of Japan (BoJ) policy meetings on Thursday and Friday, respectively.

In the meantime, rising bets for a more aggressive policy easing by the Fed, bolstered by signs of easing inflationary pressure in the United States (US), keep the US Treasury bond yields depressed near the 2024 low. This, in turn, continues to weigh on the US Dollar (USD) and acts as a tailwind for the non-yielding Gold price. Apart from this, the US political uncertainty ahead of the November election and persistent geopolitical risks further underpin demand for the safe-haven precious metal. That said, the upbeat market mood holds back bulls from placing fresh bets and should cap the commodity. 

Daily Digest Market Movers: Gold price remains supported by dovish Fed-inspired USD selling bias

  • Traders lifted bets for an oversized interest rate cut by the Federal Reserve amid signs that inflation in the US is subsiding, which continues to act as a tailwind for the non-yielding yellow metal.
  • According to the CME Group’s FedWatch Tool, the current market pricing indicates over a 50% chance that the US central bank will lower borrowing costs by 50 basis points later this week. 
  • The expectations were fueled by the softer US Consumer Price Index (CPI) and the Producer Price Index (PPI) reports last week, which provided further evidence of easing inflationary pressures.
  • The yield on the benchmark 10-year US government bond languishes near its lowest level since May 2023, while the US Dollar remains within striking distance of the YTD low touched last month. 
  • Reports of a second attempted assassination attempt on Republican presidential candidate Donald Trump at his Florida golf club on Sunday further underpin demand for the safe-haven bullion.
  • The protracted Russia-Ukraine war, along with rising instability and the risk of a further escalation of tensions in the Middle East, turns out to be another factor lending support to the XAU/USD. 
  • Bullish traders, however, seem reluctant to place fresh bets and prefer to wait for the outcome of the highly-anticipated FOMC monetary policy meeting on Wednesday before placing fresh bets. 
  • Investors this week will further take cues from the Bank of England and the Bank of Japan policy meetings, which might infuse volatility in the markets and provide some impetus to the metal. 

Technical Outlook: Gold price could pause near upper ascending channel boundary around $2,600

From a technical perspective, the recent move-up along an ascending channel since June points to a well-established uptrend and supports prospects for additional gains. That said, the Relative Strength Index (RSI) on the daily chart is on the verge of breaking in the overbought zone, warranting some caution for bullish traders. Hence, any subsequent move up is more likely to confront stiff resistance and remain capped near the top end of the upward-sloping channel, currently pegged near the $2,600 round figure. The said handle should act as a key pivotal point, which if cleared decisively will mark a fresh breakout and pave the way for a further appreciation.

On the flip side, the $2,565-2,564 area now seems to protect the immediate downside ahead of the $2,532-2,530 strong resistance breakpoint. Any further decline is more likely to attract fresh buyers and remain limited near the $2,500 psychological mark. Some follow-through selling below the $2,485 region, however, could make the Gold price vulnerable to accelerate the slide towards the $2,470 horizontal support en route to the $2,464 confluence. The latter comprises the ascending channel support 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.