- Gold price gains some traction on Friday and hits a new all-time high.
- Rising expectations of a further Fed rate cut weigh on the USD and boost the precious metal.
- Geopolitical risks further contribute to driving flows towards the safe-haven XAU/USD.
Gold price (XAU/USD) touched a fresh all-time high, around the $2,563-$2,564 region during the Asian session on Friday amid expectations of 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 easing and raised bets for a larger 50 basis points (bps) Fed rate cut at the next monetary policy meeting on September 17-18. This keeps US Treasury bond yields depressed near 2024 low and drags the US Dollar (USD) to a fresh weekly low, which, in turn, is seen as a key factor driving flows into the non-yielding yellow metal.
Apart from this, geopolitical risks arising from the ongoing conflicts in the Middle East and the protracted war between Russia and Ukraine further underpin the safe-haven demand for Gold price. With the latest leg higher, XAU/USD confirms a breakout through a multi-week trading range and looks set to extend the recent well-established uptrend. However, investors might refrain from placing fresh bullish bets and prefer to move on the sidelines ahead of key central bank event risks next week – the much-awaited Fed decision on Wednesday and the Bank of Japan (BoJ) meeting on Friday. Nonetheless, the metal remains on track to post strong weekly gains.
Daily Market Wrap: Gold price supported by Fed rate cut expectations of 50bps and geopolitical tensions
- Rising expectations for a further interest rate cut by the Federal Reserve, coupled with geopolitical risks, pushed gold prices to a new all-time high on Friday and confirmed a bullish breakout through a multi-week trading range.
- The U.S. Bureau of Labor Statistics reported on Thursday that the annual headline Producer Price Index (PPI) rose 1.7% versus estimates of 1.8% and the prior month’s reading was revised down to 2.1% from 2.2%.
- In addition, the core PPI, which excludes volatile food and energy prices, came in at 2.4% year-on-year, also below expectations for a reading of 2.5% and signaling further signs of easing inflationary pressures in the US.
- Separately, data released by the US Department of Labor (DoL) showed the number of people filing for first-time unemployment insurance benefits rose by 230,000 in the week ending September 7.
- According to the CME Group’s FedWatch tool, market participants are now pricing in a more than 40% chance that the U.S. central bank will cut borrowing costs by 50 basis points at the end of a two-day meeting next Wednesday.
- Israel has stepped up airstrikes on Iran-linked targets in Syria, while Hamas and Hezbollah bombed northern Israel on Sept. 11 in one of the largest airstrikes ever, fuelling concerns about a wider Middle East conflict.
- Russian President Vladimir Putin warned Friday that he would view a deal to allow Ukraine to attack 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 Consumer Sentiment Index in the US to take advantage of short-term opportunities around XAU/USD, which remains on track to post strong weekly gains.
Technical Outlook: Gold price could extend the uptrend to the upper boundary of the ascending channel
From a technical perspective, the recent move higher from the June 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 resistance zone and a subsequent move beyond the previous all-time high near the $2,531-$2,532 zone was seen as a fresh trigger for bullish traders. With oscillators on the daily chart holding in positive territory and still far from being in the overbought zone, gold price looks poised to rise further towards challenging the trend channel resistance, currently placed just before the $2,600 mark. The latter should act as a strong barrier ahead of the FOMC meeting next week.
On the other hand, any significant corrective decline is likely to attract fresh buyers near the $2,530-$2,525 resistance breakout point. 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 turning point for short-term traders. That said, some follow-through selling, leading to a further drop 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 could shift the short-term bias in favour of bearish traders.
Gold FAQs
Gold has played a pivotal role in human history as it has been widely used as a store of value and a medium of exchange. Today, apart from its luster and use for jewelry, the precious metal is considered a safe haven asset, meaning it is considered a good investment in turbulent times. Gold is also considered a hedge against inflation and currency depreciation as it is not dependent on any particular issuer or government.
Central banks are the largest holders of gold. In order to support their currencies in turbulent times, central banks tend to diversify their reserves and buy gold to improve the perception of the strength of the economy and the currency. High gold reserves can be a source of confidence in a country’s solvency. Central banks added 1,136 tonnes of gold worth about $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the largest annual purchase on record. Central banks in emerging economies such as China, India and Turkey are rapidly increasing their gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasury bonds, which are the main reserve and safe haven assets. When the Dollar depreciates, the price of Gold tends to rise, allowing 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 the price of Gold, while sell-offs in riskier markets tend to favor the precious metal.
Gold prices can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can cause the price of Gold to rise rapidly due to its status as a safe haven asset. As a non-yielding asset, Gold prices tend to rise when interest rates fall, while rising money prices often weigh down the yellow metal. Still, most of the moves depend on how the US Dollar (USD) performs, as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep Gold prices in check, while a weaker Dollar is likely to push Gold prices higher.
Source: Fx Street
I am Joshua Winder, a senior-level journalist and editor at World Stock Market. I specialize in covering news related to the stock market and economic trends. With more than 8 years of experience in this field, I have become an expert in financial reporting.
