Gold consolidates below record highs as Fed rate cut looms
- Gold remains rangebound below $3,650 on Monday, consolidating after last week’s all-time high near $3,675.
- The Fed’s monetary policy decision on Wednesday dominates market sentiment, with a 25 bps cut seen as certain.
- XAU/USD continues to consolidate between $3,620-$3,650, with the 21-SMA providing short-term support.
Gold (XAU/USD) kicks off the week on a cautious footing, extending late last week’s sideways momentum after peaking at an all-time high near $3,675 on Tuesday. The price action reflects a lack of conviction, as investors hold back from making bold bets ahead of a pivotal week packed with central bank monetary policy decisions.
At the time of writing, XAU/USD is trading around $3,645 after bouncing from intraday lows near $3,626, with the $3,650 barrier continuing to cap the upside.
The spotlight is firmly on the Federal Reserve's (Fed) interest rate decision due on Wednesday. Markets are fully pricing a 25-basis-point (bps) rate cut, with a small possibility of a surprise jumbo 50 bps move. Alongside the Fed, monetary policy decisions from the Bank of England (BoE), Bank of Japan (BoJ), and Bank of Canada (BoC) add to the event-heavy backdrop, potentially amplifying market volatility across asset classes, including Gold.
Overall, broader sentiment continues to lend strong support to the precious metal. Subdued US Treasury yields, a broadly weaker US Dollar (USD), and lingering geopolitical risks all reinforce safe-haven demand, leaving Gold well-positioned near record highs with scope to extend its upward trajectory.
Market movers: All eyes on Fed as monetary policy week begins
- The US Senate is set to vote on Stephen Miran’s nomination to the Fed Board on Monday, and a confirmation could allow him to join this week’s policy meeting. Some analysts believe that, if confirmed, he may advocate for a larger rate cut than markets currently expect.
- Recent US economic data has cemented expectations for Fed easing with clear signs of a cooling labor market and weakening consumer sentiment, even as inflation remains above the central bank's target.
- Nonfarm Payrolls (NFP) report showed that the US economy added just 22K jobs in August, far below the 75K forecast, while the Unemployment Rate climbed to 4.3%, its highest since late 2021. Jobless claims have climbed to multi-year highs, and prior payrolls were revised sharply lower, revealing a weaker employment picture than initially reported.
- The University of Michigan survey showed US consumer sentiment dropping to its lowest level since May, while the August Consumer Price Index (CPI) rose 2.9% YoY from 2.7% in July, and core inflation remained steady at 3.1%. At the producer level, the Producer Price Index (PPI) unexpectedly slipped, underscoring softer wholesale price pressures.
- The data highlights mounting downside risks to employment, raising concerns that softer hiring and fragile confidence could weigh further on household spending and growth. Markets increasingly expect the Fed to prioritize maximum employment over price stability within its dual mandate, given that monetary policy remains moderately restrictive.
- While a quarter-point interest rate cut is seen as a done deal, traders are focused on the Fed’s forward guidance and updated economic projections, which will shape the trajectory of monetary policy into year-end. How policymakers balance softer growth signals against sticky inflation will be key in determining whether Gold extends its record-setting rally or remains locked in consolidation mode.
Technical analysis: XAU/USD rangebound between $3,620-$3,650
XAU/USD remains rangebound on the 4-hour chart, with price action capped by repeated failures around the $3,650 psychological mark, signaling market indecision. The consolidation comes after last week’s all-time high near $3,675, with momentum indicators pointing to a pause rather than a reversal.
The 21-period Simple Moving Average (SMA) is flat around $3,641 and acting as immediate support within the range, helping to cushion intraday dips. Below that, the $3,626-$3,630 zone marks the lower boundary of the consolidation, while the 50-SMA near $3,613 provides an additional layer of protection should selling pressure deepen.
On the upside, bulls need a decisive break above the $3,650 ceiling to regain momentum. A clean 4-hour close above this level would open the door for a retest of the all-time high at $3,675, with scope to extend toward $3,700 if follow-through buying emerges.
Momentum indicators confirm the consolidation bias. The Relative Strength Index (RSI) sits near 58, while the Average Directional Index (ADX), around 31, has eased from earlier highs, pointing to waning trend strength and reinforcing the view that Gold is in a holding pattern.
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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