XAU/USD sparks overbought zone below $2,600 as Fed meeting prepares

• The price of gold breaks a three-day uptrend, sits at record highs just below $2,600 on Tuesday morning.
• The US dollar eases wounds on Treasury yields ahead of the Fed’s two-day meeting.
• The price of gold could correct before starting a new uptrend. Daily RSI boosts overbought territory.

The price of gold is just shy of a new record high of $2,590 hit on Monday as buyers take a break heading into the US Federal Reserve’s (Fed) two-day monetary policy meeting starting on Tuesday.

The price of gold remains supported by big bets on a Fed rate cut

With growing bets of a 50 basis point (bps) interest rate cut by the Fed this week on heightened concerns about the US economic outlook and weakening labor market conditions, the US dollar (USD) is licking its chops injuries alongside US Treasury bond yields.

The greenback is at weekly lows ahead of its main rivals, keeping the price of gold afloat, just outside the $2,600 mark. Markets are currently pricing in a 67 percent probability of an excessive rate cut in September, CME Group’s FedWatch tool showed.

The gold price is also finding support from continued flows into gold exchange-traded funds (ETFs) and increased physical demand in the stock market as global central banks enter an era of lower interest rates. The price of non-interest bearing gold tends to benefit from a lower interest rate environment.

In addition, investors continue to reach for safety in the traditional safe-haven gold price, still digesting Sunday’s news, which reported a potential assassination attempt on Republican presidential candidate Donald Trump, also as traders remain concerned about China’s economic concerns.

Additionally, “investment banks and analysts have become increasingly bullish on gold, with Wall Street bank Goldman Sachs showing the most confidence in near-term upside in gold, which remains the preferred hedge against geopolitical and financial risks “, reports Reuters.

“While we see a tactical downside in gold prices on our economists’ base case of a 25bp Fed cut on Wednesday, we reiterate our long trade recommendation on gold and our price target of $2,700/oz through early 2025,” the investment bank said in a note published on Monday.

Looking ahead, gold prices are taking a minor dip ahead of the next bigger leg as traders remain cautious ahead of Fed policy announcements on Wednesday. The US retail sales report, however, could provide some fresh trading incentives for bullish metals traders, with markets glued to the growing chances of a Fed rate cut.

Gold Price Technical Analysis: Daily Chart

After hitting the one-and-a-half-month symmetrical triangle target measured at $2,560, the price of gold continued its upward trajectory as the bulls refused to let up.

However, the 14-day Relative Strength Index (RSI) is pushing into overbought territory as of writing, warranting buyer caution.

A rejection of the $2,600 level could trigger a temporary correction towards Friday’s low of $2,557, below which the August 20 high of $2,532 will be tested.

Deeper declines will challenge the 21-day simple moving average (SMA) at $2,521.

If the gold price sees a resurgent demand, the next upside hurdle is seen at the $2,600 level once the record high of $2,590 is convincingly cleared.

Above that, the psychological level of $2,650 will come into play.