Gold price consolidates near record high, bullish potential seems intact
- Gold price enters a bullish consolidation phase near the all-time peak touched on Wednesday.
- Bets for more Fed rate cuts keep the USD bulls on the defensive and underpin the commodity.
- Concerns over the US/China economic outlook and geopolitical risks also benefit the XAU/USD.
Gold price (XAU/USD) regained positive traction on Thursday and rallied back closer to the all-time peak touched the previous day in reaction to the Federal Reserve's (Fed) decision to start the policy easing cycle with an oversized rate cut. Expectations of further rate cuts by the US central bank attracted fresh US Dollar (USD) selling and turned out to be a key factor that benefited the non-yielding yellow metal.
Apart from this, concerns over a slowdown in the United States (US) and China – the world's two largest economies – and persistent geopolitical risks provided an additional boost to the Gold price. That said, the risk-on rally across the global equity markets keeps a lid on any further upside for the safe-haven XAU/USD and leads to subdued range-bound price action during the Asian session on Friday.
Nevertheless, Gold price, at current levels, remains on track to end in the green for the second straight week. Moreover, the fundamental backdrop seems tilted in favor of bullish traders and supports prospects for an extension of the commodity's well-established uptrend. Traders now look to the crucial Bank of Japan (BoJ) policy update, which might infuse volatility and provide some impetus to the XAU/USD.
Daily Digest Market Movers: Gold price draws support from bearish USD and persistent geopolitical risks
- The Federal Reserve's jumbo rate cut on Wednesday and forecast for another 50 basis points fall in borrowing costs by the end of this year failed to assist the US Dollar to capitalize on the post-FOMC recovery from the YTD low.
- Moreover, Fed policymakers projected rates falling to 3.4% in 2025, down from a prior forecast of 4.1%, and declining to 2.9% in 2026, down from a prior forecast of 3.1%, which revived demand for the Gold price on Thursday.
- The USD bulls seem unimpressed by the upbeat US macro data, showing that Weekly Initial Jobless Claims fell to 219K in the week ending September 14, marking the lowest since May and pointing to a resilient labor market.
- Adding to this, the Philadelphia Fed's survey revealed that the current general activity index for manufacturing jumped from a seven-month low of -7.0 in August to 1.7 in September, surpassing consensus estimates.
- Meanwhile, the Fed's oversized rate cut fueled concerns over economic growth, which, along with persistent worries about a slowdown in China, turned out to be another factor that benefited the safe-haven XAU/USD.
- Furthermore, geopolitical risks stemming from tensions in the Middle East and the Russia-Ukraine war act as a tailwind for the precious metal amid the US political uncertainty ahead of the November presidential election.
- Apart from this, the fact that several Asian central banks and Russia are buying gold to reduce their reliance on the USD favors bullish traders and supports prospects for a further near-term appreciating move.
Technical Outlook: Gold price might confront resistance near the top end of a short-term ascending channel
From a technical perspective, the $2,600 round-figure mark, or the all-time peak set on Wednesday could offer some resistance ahead of the $2,613-2,615 region. The latter represents the top boundary of a short-term ascending trend channel extending from June and should act as a key pivotal point. With oscillators on the daily chart holding comfortably in positive territory and still far from being in the overbought zone, a sustained strength beyond the said barrier will be seen as a fresh trigger for bulls and pave the way for a further near-term appreciating move for the Gold price.
On the flip side, the $2,551-2,550 area now seems to protect the immediate downside ahead of the $2,532-2,530 horizontal resistance breakpoint. Some follow-through selling might expose the $2,500 psychological mark, below which Gold price could accelerate the slide towards the $2,476 confluence – comprising the 50-day Simple Moving Average (SMA) and the lower boundary of the channel. A convincing break below will suggest that the XAU/USD has topped out in the near term, setting the stage for a slide to the 100-day SMA, around the $2,412 region, en route to the $2,400 mark.
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.
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