XAU/USD defends $2,550 after Fed, ahead of US data

• Gold prices bounced back early Thursday after Wednesday’s volatile post-Fed trading.
• The US dollar extends the rally with Treasury yields as a jumbo Fed rate cut is priced in.
• The upbeat daily RSI continues to keep buyers alive as gold looks set to retest $2,600.

The price of gold is defending $2,550 early on Thursday, taking a breather after intense volatility seen following the all-important monetary policy announcements from the US Federal Reserve (Fed) and Fed Chairman Jerome Powell’s press conference.

Gold price fails to take advantage of Fed jumbo rate cut

Traders are turning their attention to upcoming data on US jobless claims and existing home sales to gauge the health of the overall economy, which could shed new light on the Fed’s future rate path, having a significant impact on value the US dollar. and the price of gold.

The Fed announced a 50 basis point (bps) interest rate cut on Wednesday, bringing the federal funds rate to a range of 4.75%-5.0%. The summary of economic projections, the so-called Dot Plot, suggested a total of 100 bps of rate cuts for this year and next.

Fed Chairman Jerome Powell during his press conference also maintained a dovish tone, explaining that “this recalibration of our policy stance will help maintain the strength of the economy and the labor market and continue to enable further progress in regarding inflation as we begin. the process of moving to a more neutral position. We are not on any predetermined course. We will continue to make decisions on a meeting-by-meeting basis.”

In an immediate reaction to the Fed’s policy announcements, the US dollar (USD) fell to its lowest level in over a year against its main rivals amid a sharp sell-off in US Treasury yields, lifting non-interest-bearing gold. the price to a new record of $2,600. However, the gold price faced rejection at that level and corrected sharply to settle in the red near $2,560.

Gold’s pullback was fueled by an impressive recovery in the US dollar as an excessive rate cut was well received by markets. In addition, hopes that a big Fed rate cut could lead to a potential “soft landing” for the US economy also helped the overall interest recovery.

The USD’s recovery extended into Thursday’s Asian session, keeping gold prices in trouble as traders look to a fresh batch of US economic data for fresh trading impetus. However, the price of gold continues to find support at lower levels due to renewed geopolitical tensions in the Middle East.

According to the latest reports, at least 20 people have been killed and more than 450 injured in Lebanon after portable radios or walkie-talkies used by the militant group Hezbollah exploded in several parts of the country. The blasts came a day after an alleged Israeli attack targeting pagers used by the group to communicate among its members.

A re-escalation of tensions between Israel and Hezbollah is likely to bode well for the traditional safe-haven gold price as well as hopes for further rate cuts. Markets are now pricing in a 25 bps rate cut at the Fed meeting in November and December.

Gold Price Technical Analysis: Daily Chart

As seen on the daily chart, the price of gold remains bullish as the 14-day Relative Strength Index (RSI) heads north, well above the 50 level, currently near 63.00.

The renewed rise in the price of gold could again challenge the previous high of $2,590 before reaching the $2,600 mark.

Acceptance above this level will require a test of the $2,650 psychological barrier.

On the other hand, if the corrective decline resumes, the gold price could threaten the previous day’s low of $2,547, below which the August 20 high of $2,532 will be tested.

Below, the 21-day simple moving average (SMA) at $2,524 could be a tough nut to crack for gold sellers.