Gold price rise (XAU/USD) experienced a slight pullback on Monday after reaching an all-time high (ATH) of $2,631. The surge in gold prices is driven by the anticipation of aggressive interest rate cuts by the Federal Reserve and escalating geopolitical tensions in the Middle East. As investors look for safer assets, gold’s appeal continues to grow.
Impact of Federal Rate Cuts on Gold
Gold benefits from lower interest rates because it does not offer interest, unlike other assets. When interest rates decline, the cost of holding gold becomes lower, increasing its appeal as an investment option. The People’s Bank of China (PBoC) also contributed to gold price rise by reducing its 14-day reverse repo rate by 10 basis points (bps) to 1.85% and injecting liquidity into the market, further enhancing gold’s value.
Market Anticipates Further Fed Cuts
Gold hit new heights on Monday as markets factored in the possibility of more rate cuts from the Federal Reserve before the end of the year. According to the CME FedWatch tool, there is a 51.6% chance of a 50 bps (0.50%) rate cut in the next Fed meeting in November, compared to 48.4% for a smaller 25 bps cut.
Philadelphia Federal Reserve President Patrick Harker warned that while the labor market might be softening, inflation could stall. This uncertainty is pushing gold prices higher as the market interprets his comments as a signal for more rate cuts.
Key Fed Member Speeches This Week
Several speeches by Federal Reserve officials this week are likely to impact gold prices further:
- On Monday, Atlanta Fed President Raphael Bostic and Chicago Fed President Austan Goolsbee will share their thoughts on future rate cuts.
- On Tuesday, Fed Governor Michelle Bowman will discuss the US economic outlook and policy.
- On Wednesday and Thursday, Fed Board of Governors member Adriana Kugler and Boston Fed President Susan Collins will weigh in on monetary policy.
Expectations about Fed policy remain volatile, and these discussions will likely influence both market sentiment and gold prices.
Rising Tensions in the Middle East
Geopolitical instability, particularly in the Middle East, is another key driver for gold’s recent gains. The United Nations has warned that the region is on the verge of a catastrophe as Israel and Lebanon edge closer to war. Over the weekend, Israel launched strikes in Lebanon, and Hezbollah retaliated with rocket attacks. Should this conflict escalate into a full-blown war, the demand for gold as a safe-haven asset will rise further.
BBC’s Jeremy Bowan suggested that a ground invasion by Israel could push the conflict to dangerous levels, which could further drive up the price of gold.
Gold’s Technical Outlook: More Upside Possible
Gold continues to show strength as it trends upwards. In line with technical analysis principles, the uptrend appears strong, and traders expect further gains for the yellow metal. The next price targets are $2,650, followed by $2,700.
However, gold entered overbought territory according to the Relative Strength Index (RSI), signaling that traders should be cautious about adding to their positions. A correction might be on the horizon, with support levels at $2,600, $2,550, and $2,544, based on Fibonacci retracement levels.
In conclusion, gold’s recent rally is supported by a combination of expected Fed rate cuts and escalating tensions in the Middle East. As geopolitical risks rise and monetary policy remains uncertain, gold will likely maintain its appeal as a safe-haven investment. For more insights on gold prices and trends, check out our Daily Gold Signals or the latest Daily Gold Updates.
