Gold rises as media revives debate over Fed rate cuts

• Gold hits record highs on Friday as markets again debate whether the Fed will cut by 50 or 25 basis points in September.
• Reviving the possibility of a 0.50% “jumbo” cut is fueling a further rally in gold.
• Gold’s overall uptrend is resuming, although the momentum is “overbought”.

Gold (XAU/USD) is trading hands at a high of $2,560 on Friday, trading about 0.40% higher on the day after posting new record highs on Thursday, breaking decisively out of the range it had oscillated from when it peaked in August. 20.

The initial catalyst for the breakout was the release of mixed US factory-gate price inflation or producer price index (PPI) data for August. The numbers showed a deeper-than-expected slowdown in the headline PPI, and while the core PPI remained sticky, the market reacted as if the data was disinflationary.

Gold Extends Rally After Media Rekindles Debate Above 0.50% Against Fed’s 0.25% Cut

Gold continued to rise during the Asian session on Friday due to renewed debate over whether the Federal Reserve (Fed) will cut interest rates by 0.50% or 0.25% at its meeting next Wednesday.

Wednesday’s release of still-elevated core consumer price inflation data in the form of the consumer price index (CPI) raised hopes of a “jumbo” cut of 0.50% (50bps). However, an article by respected Fed watcher in The Wall Street Journal (WSJ), Nick Timiraos, as well as comments by former New York Fed President William Dudley, suggest that 0 percent should be considered .50%. This, in turn, led to a decline in US Treasury yields, a sell-off in the US dollar (USD) and a rise in the price of gold.

Lower interest rates are positive for gold because it lowers the opportunity cost of holding the non-interest-bearing asset, making it more attractive to investors.

Technical Analysis: Gold hits record highs as general uptrend resumes

Gold (XAU/USD) is breaking out of its multi-week sideways range and breaking past highs of $2,531.

The long-term trend for gold is bullish, and according to the theory of technical analysis, since “the trend is your friend”, this favors the continuation of the uptrend.

XAU/USD 4 Hour Chart

The precious metal hit its previous target of $2,550, generated after the initial July-August breakout on August 14, and is now setting its next target at around $2,590.

Gold is overbought, however, according to the Relative Strength Index (RSI). This advises long holders not to add to their positions due to an increased risk of a pullback materializing.

If the RSI breaks out of overbought, it will signal that a correction is underway. If such a correction plays out, it will likely find support at either the previous target of $2,550 or firmer lower support at the former high of $2,531.

The trend on all timeframes remains bullish, however, suggesting that any correction will eventually fizzle out and the broader uptrend will resume, pushing the yellow metal to new highs.