On Thursday, gold (XAU/USD) surged to a new all-time high, crossing the $2,680 mark per troy ounce. Several key factors, including global interest rate cuts, increased tensions in the Middle East, and a weaker US Dollar (USD), contributed to this rise. In this article, we’ll break down why gold prices are climbing and what it means for investors.
What’s Causing Gold to Hit New Highs?
Gold prices have been rising due to decisions made by central banks worldwide to cut interest rates. The People’s Bank of China (PBoC), the Swedish Riksbank, and the Central Bank of the Czech Republic recently reduced rates, which makes holding gold—an asset that doesn’t pay interest—more appealing to investors.
The ongoing conflict between Israel and Hezbollah also adds to the uncertainty. On Wednesday, Israeli military leaders warned troops to prepare for a possible ground invasion of Lebanon, raising fears of further escalation. Whenever global risks rise, investors often turn to gold as a safe investment.
The Federal Reserve’s Role in Gold’s Rally
Another reason gold prices are climbing is the expectation that the US Federal Reserve will cut interest rates by 50 basis points (bps) in November. The chances of this larger cut are estimated at over 60%, which weakens the US Dollar and pushes up gold prices.
While recent data, such as higher-than-expected New Home Sales and Mortgage Applications, suggest the US economy may not be weakening as much as feared, markets still expect the Fed to lower rates. Labor market data, especially Jobless Claims, could also influence gold prices and the USD.
Comments from Fed officials, like Governor Adriana Kugler, have been relatively dovish, further suggesting that rate cuts are likely. Investors are also keeping an eye on Fed Chair Jerome Powell’s upcoming speech, which could impact expectations and gold prices.
Is Gold Overbought?
Gold’s long-term trend is clearly upward, but technical analysis shows that it may now be overbought, based on the Relative Strength Index (RSI). This means that while gold is likely to continue rising, a short-term correction could happen. If gold breaks out of overbought territory, it could signal a pullback, and traders may start selling.
Should gold’s price decline, key support levels are $2,600, $2,550, and $2,544, which align with past price moves. However, if the trend remains strong, gold could target new highs of $2,700 and $2,750.
Conclusion
Gold’s recent record highs are driven by lower global interest rates, rising geopolitical tensions, and expectations of Federal Reserve rate cuts. While a pullback may occur, the overall trend suggests that gold will remain a strong investment option.
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