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Gold Prices Reach $2585 Amid Fed Rate Cut Expectations; What’s Next?

Arslan Butt•Monday, September 16, 2024•4 min read
Gold prices have risen to $2,586.22 per ounce, experiencing a 0.27% increase during today’s trading session. The precious metal has been gaining momentum as investors factor in the likelihood of a more aggressive interest rate cut by the Federal Reserve (Fed), driven by easing inflationary pressures in the US.
This ongoing anticipation of a dovish monetary policy shift has kept the US Dollar (USD) subdued near its year-to-date (YTD) lows, contributing to gold’s bullish performance.
Gold typically benefits from lower interest rates as a non-yielding asset, making it an attractive option for investors seeking safe-haven assets amidst economic uncertainty.

In addition to the Fed’s policy considerations, political uncertainty ahead of the upcoming US elections and ongoing geopolitical tensions are bolstering demand for gold. However, the precious metal’s rise is not without its headwinds, as a generally positive sentiment across global equity markets has somewhat tempered its gains.
Traders remain cautious, opting to stay on the sidelines ahead of key central bank meetings scheduled for this week, which are expected to influence gold’s trajectory further.

Current Market Sentiment: How Fed Expectations Are Driving Gold Prices

Investors are closely watching the Federal Reserve’s upcoming decision, as the likelihood of a significant interest rate cut is increasing.
According to the CME Group’s FedWatch Tool, there is now over a 50% chance that the Fed will lower interest rates by 50 basis points during this week’s meeting. Softer-than-anticipated inflation data, such as the US Consumer Price Index (CPI) and Producer Price Index (PPI), which both point to easing inflationary pressures, have fueled this expectation.

Lower inflation reduces the need for the Fed to maintain higher interest rates, thus creating a favourable environment for gold. Moreover, yields on the benchmark 10-year US Treasury bond are hovering near their lowest levels since May 2023.
This decline in yields further weakens the appeal of USD-denominated assets, thus driving investors towards gold, which tends to outperform in a low-yield environment.

The Impact of Geopolitical Uncertainty on Gold Demand

Geopolitical risks have continued to support the demand for gold as a safe-haven asset. Ongoing tensions, such as the protracted Russia-Ukraine war, along with the risk of escalating instability in the Middle East, have led investors to seek the safety of gold.
Additionally, political turmoil in the US—highlighted by reports of an attempted assassination of a prominent political figure—has only intensified the market’s appetite for assets perceived as secure.

A generally positive tone in global equity markets, however, is limiting gold’s upside momentum despite these tailwinds. This reflects investors’ broader risk appetite and their tendency to gravitate toward equities rather than safe-haven assets when stock markets are performing well.

Market Movers: Key Factors Impacting Gold Prices This Week

The most significant event this week is the Federal Open Market Committee (FOMC) meeting, where the Fed’s decision on interest rates will play a pivotal role in determining the future trajectory of gold prices.
Should the Fed opt for a larger-than-expected rate cut, this could spur further downside pressure on the US Dollar and bond yields, providing additional support for gold.
Investors will also be closely monitoring monetary policy announcements from the Bank of England (BoE) and the Bank of Japan (BoJ), scheduled for later this week. Any signs of dovishness from these central banks could have broader implications for global markets, potentially driving more capital into safe-haven assets like gold.

US Dollar Weakness and Inflation Data

The US Dollar has remained under pressure, particularly after reaching its lowest levels of the year in August. With inflationary pressures in the US showing signs of subsiding, traders are betting that the Fed may lean towards more accommodative policies. This dovish stance has weakened the USD, which typically moves inversely to gold prices.
As long as the dollar remains depressed, gold will likely continue to attract investors seeking to preserve capital in a volatile market environment.

At the same time, inflation data remains a key consideration for traders. Should future reports show any resurgence in price pressures, the Fed could pivot back to a more hawkish stance, which might dampen the outlook for gold.

Gold Price Forecast and Technical Analysis

On the technical front, gold is holding firm above several key levels, signalling that the bullish trend may continue in the near term. As of the latest data:
  • Immediate Support: $2,563.55
  • Crucial Pivot Point: $2,573.17
  • Potential Resistance: $2,600.02, with further upside targets at $2,610.64 and $2,620.29
Should gold break below the immediate support level of $2,563.55, it could trigger a wave of selling pressure, pushing prices lower toward the next key support at $2,553.13. However, the Relative Strength Index (RSI) remains elevated at 77, indicating overbought conditions, which suggest a potential pullback in the short term.
Gold Price
Despite this, the fact that gold remains above the 50-day exponential moving average (EMA) at $2,529.72 reinforces the broader bullish sentiment. As long as prices stay above this key technical indicator, the market bias is likely to remain positive.
Traders are advised to monitor these levels closely, as any significant price movement around them could signal important shifts in market sentiment.

Key Insights for Traders:

  • Gold’s RSI is currently overbought, hinting at a possible short-term pullback.
  • Immediate support sits at $2,563.55; a break below this level could spark further declines.
  • The 50-day EMA at $2,529.72 provides strong bullish momentum, as long as prices remain above this threshold.

Conclusion: Will Gold Continue to Shine?

As market participants await this week’s central bank meetings, gold prices are likely to remain highly sensitive to any changes in monetary policy.
The likelihood of an excessive rate cut by the Fed and ongoing geopolitical uncertainty support gold. However, a robust equity market and the possibility of profit-taking may temper its gains in the near term.
For investors, the key takeaway is to remain vigilant as market conditions evolve. With technical indicators pointing toward overbought conditions, a short-term pullback cannot be ruled out.
Nonetheless, as long as broader economic and geopolitical risks persist, gold is expected to retain its appeal as a safe-haven asset, particularly if central banks around the world continue to signaldovish intentions.

Quick Facts:

  • Gold Price: $2,586.22 (+0.27% during today’s session)
  • Fed Interest Rate Cut Probability: Over a 50% chance of a 50-basis point cut this week (CME FedWatch Tool)
  • Key Technical Levels: Support at $2,563.55; Resistance at $2,600.02
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ABOUT THE AUTHOR See More
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Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics.His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker.His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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