Gold skyrockets to record-high above $2,600 on Fed rate cut speculation

• Gold surges to new all-time highs above $2,600, fueled by expectations of further Fed rate cuts.
• Safe-haven demand spikes due to escalating tensions between Israel and Hezbollah concurrently.
• Fed Governor Waller backs the 50-bps rate cut; however, dissenting Fed member Michelle Bowman prefers a smaller cut to guard against declaring an early win on inflation.

Gold prices climbed past $2,600, recording new all-time highs amid increasing speculation that the Federal Reserve will continue to lower borrowing costs and heightened tensions between Israel and Hezbollah in the Middle East. The XAU/USD trades at $2,621, up 1.37%.

Risk aversion is the game's name, as portrayed by Wall Street’s three leading indices, posting losses between 0.26% and 0.31%. Fed Governor Christopher Waller crossed the wires and stated that cutting 50 basis points was appropriate, citing expectations that the August Personal Consumption Expenditures (PCE) Price Index would be very low.

Waller added that inflation is softening more rapidly than anticipated, which is concerning. He also noted that the Fed could take further action if the labor market deteriorates, or inflation data soften quickly.

Meanwhile, correlations are not playing a huge role, as US Treasury yields rise with Gold prices and the Greenback. The US 10-year Treasury note yields 3.726%, up by one and a half basis points. The US Dollar Index (DXY), which tracks the American currency’s value against the other six, advanced some 0.08% to 100.71.

A scarce economic schedule in the US left Gold’s direction on the shoulders of additional Fed speakers. Michelle Bowman dissented to lower cuts by 50 bps. Although it was appropriate to adjust the policy, she preferred a smaller cut, as risks on the decision could be interpreted as a “declaration of victory on inflation.”

Recently, Philadelphia Fed Patrick Harker said that risks on inflation and employment are balanced.

“Geopolitical risks, such as ongoing conflicts in Gaza, Ukraine, and elsewhere, will ensure to sustain gold's safe-haven demand,” mentioned an analyst cited by Reuters.

Looking ahead into the next week, the Fed parade begins with Atlanta’s Fed Raphael Bostic, Chicago’s Austan Goolsbee, and Minnesota’s Neel Kashkari. On the data front, S&P Global Flash PMIs, along with housing data and the Fed’s preferred inflation gauge, the Core Personal Consumption Expenditures (PCE) Price Index, will dictate the XAU/USD forward path, amidst the beginning of an easing cycle.

Daily digest market movers: Gold price traders eye next week US busy schedule

• Overall weakness on the US Dollar and elevated tensions in the Middle East kept Gold’s rally underway.
• Bullion prices had risen over 27% in 2024, the biggest annual rise since 2010.
• China and India's physical demand for Gold has overshadowed anemic inflows into Gold-backed Exchange-Traded Funds (ETFs).
• The Summary of Economic Projections indicates the Fed projects interest rates to end at 4.4% in 2024 and 3.4% in 2025.
• Inflation, as measured by the Core Personal Consumption Expenditures Price Index, is estimated to reach its 2% target by 2026, with forecasts of 2.6% in 2024 and 2.2% in 2025.
• US economy will likely grow at a 2% pace in 2024, with the Unemployment Rate rising to 4.4% by the end of the year.
• December 2024 fed funds rate futures contracting suggests that the Fed might lower rates by at least 53 basis points, implying that in the following two meetings this year the market expects one 50 bps and one 25 bps rate.

XAU/USD technical outlook: Gold price hits record highs above $2,600

Gold’s uptrend continues after hitting a new all-time high (ATH) at $2,625. Even though all the signs point upwards, the rally of the golden metal seems overextended, opening the door for a pullback before aiming to new record highs.

Momentum favors buyers. The Relative Strength Index (RSI) aims upwards in bullish territory and not in overbought territory. Therefore, the path of least resistance is tilted to the upside.

XAU/USD's first resistance would be $2,650, followed by the psychological $2,700 figure. In the event of a pullback, the first support would be the $2,600 mark, followed by the September 18 swing low of $2,546. A breach of the latter will expose the August 20 high, which turned into support at $2,531, before aiming toward the September 6 low of $2,485.