Gold price hits new all-time high, fueled by Fed tapering bets, geopolitics

• Gold is hitting a new record high, driven by expectations of a Fed rate cut in November and falling US Treasury yields.
• Mixed US economic data reveals manufacturing weakness but service sector resilience, according to S&P Global Flash PMI.
• Fed officials are expressing caution about aggressive interest rate cuts, maintaining flexibility in policy while noting rising risks in the labor market.
• Rising tensions between Israel and Hezbollah increase the appeal of the haven, which may lead to additional demand for gold.

The price of gold rose marginally on Monday, hitting an all-time high above $2,630, fueled by growing bets that the US Federal Reserve (Fed) will cut interest rates in November. XAU/USD is trading at $2,627, posting gains of over 0.20%.

US stocks showed an improvement in risk appetite on Monday. Bullion traders hit record highs in the past two trading days despite a firm US dollar. The main driver appears to be the fall in US Treasury yields, with 10-year T-bills hitting 3.741%, failing to rise amid the Fed speaker’s pushback against aggressive rate cuts.

Data from the United States (US) were mixed. S&P Global released its Flash PMI, giving a gloomy outlook for manufacturers, while the services sector remained resilient despite a modest deceleration compared to August data.

Meanwhile, the Atlanta Fed GDP Now model projects the economy to grow 2.9% in Q3 2024, even as the labor market softened.

On Monday, regional Fed presidents acknowledged that the risks of a weakening labor market have increased. However, they ruled out cutting interest rates at a pace of 50 bps, keeping their options open for future meetings and signaling a gradual approach.

This capped the XAU/USD rally, although heightened tensions in the Middle East conflict between Israel and Hezbollah could dampen risk appetite and boost gold prices. According to the Associated Press, the US is sending more troops to the Middle East as violence has increased, the Pentagon said Monday.

Daily market reasons: Gold price holds on to gains despite Fed comments

• The US S&P Global Manufacturing PMI further deteriorated from 47.9 in August to 47.0, below forecasts of 48.5.
• The S&P Global Services PMI rose to 55.4, above estimates of 55.3 but below the previous month’s 55.7, suggesting the US economy is slowing.
• According to the World Gold Council, physically backed gold ETFs worldwide saw modest net inflows of 3 metric tons last week.
• Minneapolis Fed President Neel Kashkari said the Fed remains data-driven, saying the 50 bps rate cut was “the right decision” and projected the federal funds rate to end at 4.4 percent in 2024.
• Atlanta Fed President Raphael Bostic noted that the half-point cut “does not lock in a cadence for future rate cuts,” while acknowledging that labor market risks have increased.
• Chicago Fed President Austan Goolsbee added that more rate cuts will be needed next year.

XAU/USD Technical Outlook: Gold Poised for Pullback Ahead of Gains Extension

XAU/USD is partially bullish, although the rally looks overextended. Gold price action remains subdued in an anemic $20 range.

The Relative Strength Index (RSI) has turned overbought, suggesting that buyers are in charge, but there could be a pullback.

Expect a downside if XAU/USD breaks below the September 18 daily high of $2,600. The next key support levels to test will be the September 18 low of $2,546, followed by the 50-day Simple Moving Average (SMA) at $2,481.

Conversely, if XAU/USD breaks the all-time high (ATH) of $2,634, traders could look at the $2,650 area, followed by the $2,700 threshold.