The price of gold is consolidating near all-time highs, holding comfortably above the $2,600 mark

• The price of gold breaks after the recent strong move to a new all-time high reached on Monday.
• The fundamental backdrop favors bullish trades and supports prospects for further gains.
• Traders are now looking forward to the US PCE price index on Friday before placing directional bets.

The price of gold (XAU/USD) is extending its price consolidation move for a second straight day on Tuesday as bulls turn cautious after the recent rally to a new all-time high hit the previous day amid slightly overbought conditions on the daily chart. The downside remains cushioned by bets for more aggressive easing from the US Federal Reserve (Fed), which limits the US dollar’s (USD) recovery from the YTD peak reached in reaction to last week’s jumbo rate cut.

Apart from this, lingering geopolitical risks stemming from ongoing conflicts in the Middle East, along with political uncertainty in the US ahead of the November election and concerns about an economic slowdown, should support gold prices. That said, the underlying bullish tone in global equity markets is keeping a lid on XAU/USD ahead of this week’s US Personal Consumption Expenditure (PCE) price index release on Friday.

Daily Digest Market Movers: Gold price remains supported by further Fed rate cut bets, geopolitical risks

• Bets that the Federal Reserve will further cut borrowing costs by 125 basis points in 2024 after last week’s 50bps rate cut pushed the unprofitable gold price to a new record high on Monday.
• According to CME Group’s FedWatch tool, investors are now betting on another outsized rate cut at the November policy meeting, which caps a modest recovery in the US dollar from YTD lows.
• Minneapolis Fed President Neel Kashkari noted Monday that the balance of risks has shifted from high inflation to further weakening of the labor market, justifying a lower interest rate.
• Adding to that, Atlanta Fed President Raphael Bostic said recent data showed convincingly that the US is on a sustainable path to price stability and that risks to the labor market have increased.
• Chicago Fed President Austan Goolsbee said deterioration in the labor market usually happens quickly and keeping rates high doesn’t make sense when you want things to stay where they are.
• On the data side, a survey by S&P Global showed that business activity in the euro area unexpectedly contracted sharply, while business activity in the US was flat in September.
• Additional details on the US flash PMI showed that average prices for goods and services rose at the fastest pace in six months, pointing to an acceleration in inflation in the coming months.
• This is in addition to the assumption that interest rate cuts implemented to stimulate the economy occasionally lead to higher prices and could benefit the commodity’s inflation hedge status.
• Israeli airstrikes on Monday against what it said were Hezbollah weapons sites in southern and eastern Lebanon killed nearly 500 people, raising the risk of a wider conflict in the Middle East.
• This, along with US political uncertainty and a bleak global economic outlook, suggests the path of least resistance for the safe-haven precious metal remains up.
• That said, a surprise interest rate cut by the People’s Bank of China (PBOC) on Monday, along with a temporary spending bill to fund the US government until December 20, limits gains for XAU/USD.
• Traders may also choose to stay on the sidelines ahead of the release of the US Personal Consumption Expenditure (PCE) price index on Friday amid overbought conditions on the daily chart.

Technical Outlook: The price of gold needs to consolidate before carrying forward the recent uptrend

From a technical perspective, the recent breakout and acceptance above the $2,600 level could be seen as a new trigger for bullish traders. That said, the Relative Strength Index (RSI) on the daily chart is holding above the 70 mark and calls for some caution. Therefore, it will be prudent to wait for a short-term consolidation or a modest pullback before positioning yourself for the next stage of a move.

Meanwhile, any corrective slide is likely to attract new buyers near the $2,600 mark, below which the price of gold could drop to the horizontal $2,560 area. The next relevant support is fixed near the resistance level of $2,535-2,530 before the psychological level of $2,500. A convincing break below the latter could shift the short-term bias in favor of bearish trades and pave the way for significant downside.