Created
: 2024.09.23
2024.09.23 19:00
Gold (XAU/USD) slightly retraces during the European session on Monday after being pushed up to a new all-time-high (ATH) of $2,631 earlier in the day, as markets continue to price in more aggressive interest rate cuts from the Federal Reserve (Fed) whilst rising geopolitical tensions stemming from the Middle East increase safe-haven demand for the precious metal.
In regard to Fed rate cuts, lower interest rates are positive for Gold, as they reduce the opportunity cost of holding the non-interest-paying asset, making it more attractive to investors.
As such, the decision by the People's Bank of China (PboC) to lower its 14-day reverse repo rate by 10 basis points (bps) to 1.85% early Monday, as well as inject additional liquidity into the financial system, probably further added to the attractiveness of Gold.
Gold rallies to new ATHs on Monday as markets price in the possibility of another double-dose interest rate cut from the Federal Reserve before Christmas. The chances of the Fed reducing interest rates by 50 bps (0.50%) again at the next meeting in November currently stand at 51.6% versus 48.4% for a 25 bps cut, according to the CME FedWatch tool.
Recent commentary from Federal Reserve (Fed) Bank of Philadelphia Patrick Harker (voting member) late Friday suggested that whilst the labor market might be softening, there was a risk "the inflation decline could stall". His comments scored a 5.8 on FXStreet's FedTracker, which gauges the tone of Fed officials' speeches on a dovish-to-hawkish scale from 0 to 10 using a custom AI model.
The week ahead sees more commentary from Fed members, which could impact expectations regarding Fed policy and the price of Gold:
The United Nations (UN) has warned that the Middle East is on the brink of a catastrophe as Israel and Lebanon inch closer to all-out war.
Over the weekend, Israel struck targets in Lebanon and Hezbollah retaliated with rocket strikes in northern Israel. It is possible Israel could mount a ground invasion of Lebanon, escalating the war further. Such an event would probably push up the price of Gold.
"If Hezbollah does not buckle, which I don't think they will because fighting Israel is deep in their DNA, Israel has said they will 'do more'," says Jeremy Bowan, International Editor at the BBC. "That might be some kind of ground operation involving sending tanks and troops into Lebanon. And that, I think, then goes into a very escalatory and dangerous situation", Bowan added.
Gold extends its uptrend, pushing to new record highs on Monday. Given the principle in technical analysis that "the trend is your friend," the odds favor more upside for the yellow metal in line with the dominant long, medium, and short-term uptrends.
The next targets to the upside are the round numbers: $2,650 first and then $2,700.
Gold entered overbought levels, according to the Relative Strength Index (RSI), on Friday. This advises traders not to add to their long positions. If Gold exits overbought, it will be a sign for them to close long positions and sell shorts, as it would suggest a deeper correction is in the process of unfolding.
If a correction evolves, firm support lies at $2,600 (September 18 high), $2,550 and $2,544 (0.382 Fibonacci retracement of the September rally).
Created
: 2024.09.23
Last updated
: 2024.09.23
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