Gold Price Bulls Have the Upper Hand Near All-Time High Ahead of Fed Meeting
Gold Price Bulls Have the Upper Hand Near All-Time High Ahead of Fed Meeting
The gold price (XAU/USD) has reached a fresh all-time high near the $2,589-2,590 area, marking a significant milestone for the precious metal. However, despite this impressive peak, the gold price has pulled back slightly, trading around the $2,581-2,582 region during the early European session. This brief dip can be attributed to profit-taking in response to a generally positive risk tone in the broader market. Even so, expectations of aggressive policy easing from the Federal Reserve (Fed) continue to act as a supportive factor for the gold price, limiting any significant downward movement.
Factors Driving Gold’s Price Surge
Rising Bets for a Fed Rate Cut
One of the primary reasons for the current bullish momentum in gold is the rising expectation of an oversized rate cut from the Federal Reserve. After recent economic data showed that inflation in the US was subsiding, markets began pricing in the possibility of a 50 basis points (bps) rate cut at the upcoming Federal Open Market Committee (FOMC) meeting. The softer US Consumer Price Index (CPI) and Producer Price Index (PPI) reports have reinforced the belief that the Fed may adopt a more dovish stance, further boosting gold’s appeal as a safe-haven asset.
US Treasury Yields and the Dollar Near Lows
With inflation easing, US Treasury bond yields and the US Dollar (USD) remain near their lowest levels in 2024, providing additional support for gold. Since gold is a non-yielding asset, lower bond yields make it more attractive to investors seeking a store of value, especially during economic uncertainty. The weaker dollar also enhances the appeal of gold, making the metal cheaper for buyers holding other currencies.
Safe-Haven Demand Amid Geopolitical Risks
Aside from monetary policy expectations, geopolitical tensions also play a significant role in supporting gold prices. Reports of an attempted assassination of Republican presidential candidate Donald Trump at his Florida golf club on Sunday have added to the uncertainty. Additionally, the protracted Russia-Ukraine war and rising instability in the Middle East have heightened the demand for safe-haven assets like gold. These factors continue to bolster the precious metal’s price, even as bullish traders remain cautious ahead of key central bank events later in the week.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
The Impact of Central Bank Events on Gold Prices
FOMC Meeting and Its Influence on Gold
The gold market is now focusing on the two-day FOMC policy meeting, which begins on Tuesday. The outcome of this meeting is crucial for determining the future direction of gold prices. If the Fed announces an aggressive 50 bps rate cut, it could further weaken the US dollar and lower bond yields, both of which would be bullish for gold. However, traders seem hesitant to place fresh bets until the policy decision is made, reflecting a sense of caution in the market.
Bank of England and Bank of Japan Policy Meetings
In addition to the Fed, the Bank of England (BoE) and the Bank of Japan (BoJ) are also scheduled to release their monetary policy updates later this week. These events could introduce further volatility into the markets, potentially providing fresh momentum for gold. If either central bank signals a more accommodative monetary stance, it could drive additional interest in safe-haven assets, reinforcing the bullish outlook for gold.
Technical Outlook: Gold’s Uptrend and Key Levels to Watch
Well-Established Uptrend Points to Further Gains
From a technical perspective, gold’s recent move along an ascending channel since June highlights a well-established uptrend. This supports the prospect of further gains in the near term. However, the Relative Strength Index (RSI) on the daily chart is nearing the overbought zone, which warrants caution for bullish traders. This suggests that while the overall trend is bullish, there may be some resistance at higher levels.
Key Resistance Levels
The gold price is likely to face stiff resistance around the $2,600 mark, which is currently the top end of the upward-sloping channel. This round figure is expected to act as a key pivotal point. If the price breaks above this level decisively, it could signal a fresh breakout, paving the way for further appreciation in gold prices. Beyond $2,600, the next potential resistance levels could emerge at $2,620 and $2,650.
Support Levels to Watch
On the downside, the $2,565-2,564 area now acts as immediate support. A break below this level could see gold prices decline toward the $2,532-2,530 zone, which is another strong support area. Any further pullback might be limited near the $2,500 psychological level, where fresh buyers could step in. However, if gold falls below the $2,485 region, it could trigger more significant selling pressure.
The $2,470 horizontal support and the $2,464 confluence (comprising the ascending channel support and the 50-day Simple Moving Average) are also key levels to monitor. A decisive break below these levels might shift the near-term bias in favor of bearish traders.
Daily Market Movers: Key Drivers for Gold Price Movements
- Fed Rate Cut Expectations: The primary driver of gold prices at the moment is the expectation that the Fed may cut interest rates by 50 bps later this week. The probability of this rate cut has increased following weaker inflation data from the US.
- Easing Inflationary Pressures: Softer CPI and PPI reports in the US have reinforced the market’s belief that inflation is subsiding, which in turn is boosting gold prices as investors anticipate a more accommodative monetary policy from the Fed.
- Low US Treasury Yields and Dollar Weakness: The yield on the benchmark 10-year US government bond remains near its lowest level since May 2023, while the US Dollar continues to hover near its year-to-date low. Both of these factors support higher gold prices.
- Geopolitical Tensions: Political uncertainties, including the recent reports of an attempted assassination of Donald Trump and ongoing geopolitical tensions such as the Russia-Ukraine war, are contributing to the demand for safe-haven assets like gold.
- Caution Ahead of Central Bank Meetings: Despite the bullish backdrop, traders are opting to stay cautious ahead of this week’s major central bank meetings, including the FOMC, BoE, and BoJ. These events are likely to introduce volatility into the markets and could provide fresh impetus to the gold price.
Conclusion: A Bullish Outlook with Caution Ahead
In conclusion, gold prices have surged to new all-time highs amid rising expectations for a Fed rate cut and ongoing geopolitical tensions. The fundamental backdrop remains supportive of further gains, as easing inflation, low Treasury yields, and a weak dollar all act as tailwinds for the precious metal.
From a technical standpoint, gold’s uptrend remains intact, with the $2,600 level acting as a key resistance point. On the downside, the $2,500 mark and the $2,470-2,464 region provide strong support levels.
As traders await the outcome of this week’s central bank meetings, the gold market could see increased volatility. However, any significant dips are likely to be viewed as buying opportunities, with the path of least resistance still pointing to the upside. The focus now shifts to the FOMC meeting on Wednesday, followed by the BoE and BoJ updates, which will play a pivotal role in shaping Gold’s next move.
