Gold (XAU/USD) is currently trading around $2,580 on Monday, just below the record high of $2,589 it hit earlier in the day. After a strong rally last week, gold prices have now leveled off, but the overall outlook for gold remains positive.
What Caused the Recent Gold Rally?
The recent rise in gold prices came after mixed economic data from the US. The Producer Price Index (PPI) for August showed inflation wasn’t as high as expected. This was followed by reports from The Wall Street Journal and Financial Times suggesting the Federal Reserve might make a bigger 0.50% rate cut at its next meeting.
Gold Rises on Chances of a Bigger Fed Rate Cut
Gold’s price jumped at the end of last week due to increased chances that the Federal Reserve would cut interest rates by 0.50% at its September 17-18 meeting. Lower interest rates usually make gold more attractive because it doesn’t pay interest.
By Monday’s European session, the odds of a 0.50% cut had risen to 59%, up from 15% earlier in the week. The market has already priced in a smaller 0.25% cut, based on data from the CME FedWatch tool.
Gold’s performance may also be influenced by several central bank meetings this week. In addition to the Federal Reserve, banks in the UK, Japan, Brazil, Indonesia, Norway, Turkey, and South Africa are meeting. If the general trend points to global rate cuts, gold could continue its upward climb.
Gold’s Price Stalls After Rally
Gold has leveled off at around $2,580. The Relative Strength Index (RSI) shows gold is overbought, suggesting traders should be cautious. Adding more long positions at this stage could be risky.
If the RSI falls back, it could signal a good time to sell off long positions and consider short trades. This might mean a price correction is coming soon.
XAU/USD 4-Hour Chart
The overall trend for gold remains bullish across short, medium, and long-term charts. The saying “the trend is your friend” applies here, meaning any dip is likely to be short before gold continues its uptrend. However, there have been bearish candles, signaling a possible correction is near.
If prices dip, strong support levels are expected at $2,550, $2,544 (based on Fibonacci retracement), and $2,530, which was a previous price high.
Conclusion
Gold’s recent surge was driven by US economic data and growing chances of a Fed rate cut. While prices have stalled, the long-term outlook remains positive. Investors should watch for upcoming central bank decisions, which could influence gold prices further.
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