Gold price stands tall near record high, overbought RSI warrants caution for bulls
- Gold price is underpinned by dovish Fed expectations and geopolitical tensions.
- The upbeat market mood does little to dent the underlying strong bullish tone.
- Traders await speeches by Fed officials and the US PCE data for a fresh impetus.
Gold price (XAU/USD) rallied to the $2,664-2,665 region on Tuesday, hitting yet another record high amid rising bets for a more aggressive policy easing by the Federal Reserve (Fed) and escalating geopolitical tensions in the Middle East. Meanwhile, dovish Fed expectations, along with Tuesday's disappointing US macro data, keep the US Dollar (USD) depressed near the YTD low set last week. This, to a larger extent, overshadows the latest optimism led by China's new stimulus measures and acts as a tailwind for the non-yielding yellow metal.
Bulls, however, take a breather during the Asian session on Wednesday amid slightly overbought conditions on the daily chart. Furthermore, investors seem reluctant to place aggressive bets as more Fed officials are set to speak this week, including the Fed Chair Jerome Powell on Thursday. Also this week, the focus will be on the release of the US Personal Consumption Expenditure (PCE) Price Index on Friday, which might influence expectations about the Fed's rate-cut path and determine the next leg of a directional move for the Gold price.
Daily Digest Market Movers: Gold price holds ground near all-time peak amid bets for another 50 bps rate cut by the Fed
- According to the CME Group's FedWatch Tool, the markets are currently pricing in over a 75% chance that the Federal Reserve will cut interest rates by another 50 basis points in November.
- Adding to this, Tuesday's weaker US macro data weighed heavily on the US Dollar and dragged it back closer to the YTD low, lifting the non-yielding Gold price to a fresh all-time peak.
- The Conference Board's (CB) Consumer Confidence Index deteriorated in September and dropped to 98.7, from August's 105.6, while the Present Situation Index fell to 124.3 from 134.6.
- A survey from the Richmond Fed indicated that manufacturing activity remained sluggish and the composite manufacturing index declined to -21 in September from the previous -19.
- Israeli airstrikes in southern and eastern Lebanon on Monday, which killed over 500 people, raised the risk of a broader war in the Middle East and further boosted the safe-haven XAU/USD.
- The latest optimism led by China's new stimulus measures remains supportive of the risk-on rally, albeit does little to dent the strong bullish sentiment surrounding the precious metal.
- Speeches by Fed officials this week, including the Fed Chair Jerome Powell on Thursday, will be looked at for cues about the rate-cut path and provide a fresh impetus to the commodity.
- The focus, meanwhile, will remain glued to the release of the US Personal Consumption Expenditure (PCE) Price Index on Friday, which will drive the USD demand in the near term.
Technical Outlook: Gold price needs to consolidate before the next leg up, ascending channel acceleration in play
From a technical perspective, this week’s breakout through a short-term ascending channel and the subsequent move up supports prospects for additional gains. That said, the Relative Strength Index (RSI) on the daily chart has moved above the 70 mark, suggesting slightly overbought conditions. This, in turn, makes it prudent to wait for some near-term consolidating or a modest pullback before placing fresh bullish bets around the Gold price.
In the meantime, any corrective slide is more likely to attract some dip-buying and find decent support near the ascending channel resistance breakpoint, around the $2,625 region. This is followed by the $2,600 round figure, which if broken decisively might prompt some technical selling and drag the Gold price towards the $2,575 region en route to the $2,560 area and the $2,535-2,530 resistance-turned-support.
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
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