The price of gold (XAU/USD) continued its upward momentum for the second consecutive day on Friday, surpassing the $2,600 mark during the early European trading session. This rally comes in the wake of the Federal Reserve’s (Fed) significant interest rate cuts on Wednesday. The Fed’s forecast for a further 50 basis points reduction in borrowing costs by year-end has put pressure on US Treasury bond yields, consequently weakening the US Dollar (USD) and giving a boost to gold, which benefits in times of USD decline.
Moreover, concerns about economic slowdowns in both the US and China, the world’s largest economies, and rising geopolitical tensions in the Middle East have further supported gold’s price surge. However, the overall market’s risk-on sentiment may prevent aggressive buying, potentially limiting the upward movement of the safe-haven XAU/USD. Nonetheless, gold appears well-positioned to end the week in the green for the second consecutive week, with conditions favoring further gains.
Key Factors Driving Gold Price Rally
Fed Rate Cuts and USD Weakness
The Federal Reserve’s substantial interest rate cut on Wednesday, along with expectations for another 50 basis point cut by year-end, has diminished the USD’s strength. This weakness is a key driver for gold’s price rise, as the precious metal is more attractive to investors when the USD declines. Along with this, Fed policymakers also projected lower rates for the next two years, sparking increased demand for gold.
Global Economic Concerns
Persistent concerns about slowdowns in the US and China remain a significant factor in supporting gold’s upward trend. Economic uncertainty and fear of further geopolitical conflicts, especially in the Middle East, have pushed investors toward gold as a safe-haven asset.
Despite the market’s risk-on sentiment, gold’s safe-haven appeal seems to remain strong, helping the precious metal maintain its upward trajectory.
Market Movements and Key Indicators
Jobless Claims and Manufacturing Activity
US macroeconomic data released last week showed some positive signs. Initial jobless claims dropped to 219K, the lowest figure since May, pointing to a strong labor market. Additionally, the Philadelphia Fed’s survey showed manufacturing activity increasing from -7.0 to 1.7, beating expectations.
However, despite this data, the USD remained under pressure due to concerns over economic growth. This uncertainty has provided further support to gold, alongside geopolitical risks stemming from tensions in the Middle East and the ongoing Russia-Ukraine conflict.
Central Bank Gold Purchases
In addition to these factors, several central banks, including Russia and those in Asia, are continuing to purchase gold as part of their strategy to reduce dependence on the USD. This trend supports the bullish outlook for gold in the near term.
Technical Outlook: What’s Next for Gold Price?
From a technical analysis standpoint, the $2,600 level is now acting as a critical resistance point, with the next key resistance zone being between $2,613 and $2,615. This area marks the top boundary of an ascending trend channel that began in June. If gold prices can sustain momentum and break through this level, it could trigger further bullish action and push the price higher in the near term.
On the downside, the $2,550 level provides immediate support, followed by the $2,530 region. A break below these levels could see the price sliding toward $2,500. Should this occur, the $2,476 level, which aligns with the 50-day Simple Moving Average (SMA), would come into focus. Any break below this would indicate that gold may have peaked in the near term, opening the door to a decline toward the 100-day SMA at around $2,412.
Conclusion
As gold continues to trade near record highs, several factors indicate that the precious metal could see further gains in the near future. The Fed’s rate cuts, coupled with global economic concerns and geopolitical tensions, have created a favorable environment for gold’s price.
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