The price of gold rises to a new record on hopes of an outsized Fed rate cut

• The price of gold is gaining some traction following Friday and hitting a new record high.
• Growing bets for a bigger Fed rate cut are weighing on the USD and boosting the precious metal.
• Geopolitical risks are further contributing to driving flows to safe haven XAU/USD.

The price of gold (XAU/USD) hit a new all-time high around the $2,563-$2,564 region during the Asian session on Friday amid expectations for more aggressive policy easing by the Federal Reserve (Fed). A weaker-than-expected US producer price index (PPI) report on Thursday provided further evidence that inflation has eased and raised bets for a Fed rate cut move of 50 basis points (bps) to the next policy meeting on September 17. -18. This keeps US Treasury yields down near 2024 lows and drags the US dollar (USD) to a new weekly low, which in turn is seen as a key factor driving flows into the unprofitable yellow metal.

Apart from this, geopolitical risks stemming from the ongoing conflicts in the Middle East and the protracted Russia-Ukraine war are further supporting the demand for the traditional gold price. With the latest move, XAU/USD confirms a breakout through a multi-week trading range and looks poised to extend the recent well-established uptrend. Investors, however, may refrain from placing new bullish bets and prefer to sideline ahead of next week’s key central banking event risks – the highly anticipated Fed decision on Wednesday and the Bank of Japan (BoJ) meeting on Friday. However, the metal remains on track to post strong weekly gains.

Daily Digest Market Movers: Gold price supported by 50 basis point Fed rate cut bets and geopolitical tensions

• Growing bets for more interest rate cuts by the Federal Reserve, along with geopolitical risks, lifted the price of gold to a new all-time high on Friday and confirmed a bullish breakout through a multi-week trading range.
• The US Bureau of Labor Statistics reported on Thursday that the annual producer price index (PPI) rose 1.7% versus estimates of 1.8%, and the previous month’s reading was revised down to 2.1 % from 2.2%.
• Adding to these, the core PPI, which excludes volatile food and energy prices, came in at 2.4% from a year ago, also missing expectations for a 2.5% reading and still showing signs of easing of inflationary pressures in the US.
• Separately, data released by the US Department of Labor (DoL) showed that the number of people filing for unemployment insurance benefits for the first time rose to 230,000 in the week ended September 7.
• According to CME Group’s FedWatch tool, market players now have a more than 40 percent chance that the U.S. central bank will cut borrowing costs by 50 basis points at the end of a two-day meeting next Wednesday.
• Israel has stepped up airstrikes on Iran-linked targets in Syria, while Hamas and Hezbollah struck northern Israel on September 11 in one of the largest airstrikes ever, fueling concerns of a wider conflict in the Middle East.
• Russian President Vladimir Putin warned on Friday that he would consider a deal allowing Ukraine to hit targets inside Russia with missiles supplied by the West as tantamount to NATO entering the war directly.
• Investors are now eagerly awaiting the release of the preliminary US consumer sentiment index from Michigan to take advantage of near-term opportunities around XAU/USD, which remains on track for strong weekly gains.

Technical outlook: The price of gold could extend the uptrend to an upward upper limit of the channel

From a technical perspective, the recent move up from the June swing constitutes the formation of an ascending channel and indicates a well-established uptrend. Moreover, Thursday’s close above the $2,525-$2,526 supply zone and a subsequent move beyond the previous all-time high near the $2,531-$2,532 zone was seen as a new trigger for bullish traders. With the oscillators on the daily chart staying in positive territory and still far from being in the overbought zone, the price of gold looks poised to climb further to challenge the resistance of the trend channel, currently fixed just before the 2,600 mark USD. The latter should act as a strong barrier ahead of next week’s FOMC meeting.

On the other hand, any significant corrective decline is likely to attract new buyers near the $2,530-$2,525 resistance. This should help limit downside near the psychological $2,500 level, which should now act as a strong base for gold prices and a key point for short-term traders. That said, some further selling leading to a further decline below the weekly low around the $2,485 region could pull XAU/USD to the $2,470 horizontal support en route to the $2,457-2,456 confluence. The latter comprises the lower boundary of the aforementioned channel and the 50-day simple moving average (SMA), which, if decisively broken, could change the short-term bias in favor of bearish traders.