XAU/USD aims to retest record highs near $2,500

XAU/USD Current Price: $2,464.29

• Speculation that the Fed has no choice but to cut interest rates is weighing on the US dollar.
• The United States will release July’s consumer price index later this week.
• XAU/USD is poised to extend gains despite near-term overbought conditions.

Spot gold continued to rise for a third day in a row on Monday and is currently trading above $2,460 a troy ounce. The shiny metal started the week on a positive note amid weaker demand for the US dollar. Meanwhile, concerns over escalating tensions in the Middle East fueled demand for gold. Western countries have issued a warning of a potential attack by Iran on Israel, which would diminish any chance of a ceasefire.

XAU/USD rallied on growing speculation that the United States (US) Federal Reserve (Fed) had no more room to delay interest rate cuts. The Fed is expected to make its first cut at its next meeting in September, with a potential cut of 50 basis points (bps).

US data due out this week could shed some light on the matter: the country will release July inflation data next Wednesday. The Consumer Price Index (CPI) is expected to fall modestly from the previous month, but still above the central bank’s target of around 2%. However, it is not all about inflation. Policymakers will have to assess the risk of an economic downturn if they decide not to cut record rates.

XAU/USD Short Term Technical Outlook

Technically, XAU/USD is poised to extend its lead. On the daily chart, the technical indicators turned north after a brief consolidation into positive levels. Additionally, the pair is trading above all of its moving averages, with the 20 Simple Moving Average (SMA) gaining upward traction above the already bullish 100 and 200 SMAs. XAU/USD broke above the 23.6% Fibonacci retracement of the June/July rally at $2,438.80, a relevant support level in the event of a pullback.

In the short-term, and according to the 4-hour chart, XAU/USD is overbought, but shows no signs of a reversal as the pair presses its intraday high. Meanwhile, technical indicators have pared their gains and are at extreme levels, reflecting the ongoing pause rather than suggesting a future decline. Finally, the 20 SMA is heading firmly north, below the current level and above the longest non-direction, reflecting bullish dominance and keeping risk tilted to the upside.

Support levels: 2,442.90 2,438.80 2,425.10

Resistance levels: 2,466.00 2,483.70 2,495.10