Gold plateaus after reaching record highs

• Gold is stabilizing at all-time highs after its steep rally late last week.
• The general trend remains bullish and much depends on the outcome of the Fed meeting on Wednesday.
• Gold is in the overbought zone according to the RSI, but in a firm uptrend on all time frames.

Gold (XAU/USD) is trading hands at $2,580 on Monday, just below the all-time high (ATH) of $2,589 reached earlier in the day. It settled after rising strongly on Thursday and Friday, but the overall trend remains bullish.

The initial catalyst for the rise in ATHs was mixed US factory gate price inflation or producer price index (PPI) data for August, which revealed unexpected softness in the headline figure.

This was followed by two articles in The Wall Street Journal (WSJ) and Financial Times (FT) that revived the case for the Fed to make a relatively large 0.50% cut in its funds rate at Wednesday’s meeting.

Gold rises on higher odds of 0.50% Fed rate cut.

Gold rose late last week on increased chances that the Fed will make a bigger 0.50% cut in the key federal funds rate at its September 17-18 meeting. The expectation of lower interest rates makes the non-interest-paying precious metal more attractive to investors.

Heading into Monday’s European session, the odds that the Fed will cut rates by 0.50% have risen sharply to 59% (from about 15% midway through last week), with a 0.25% cut in full price, according to the tool CME FedWatch. .

Gold may be affected by a generally busy schedule for central banks in the coming week. Not only will the Fed hold its policy meeting, but so will the Bank of England (BoE), the Bank of Japan (BoJ) and the central banks of Brazil, Indonesia, Norway, Turkey and South Africa. If the general consensus is that inflation is falling and central banks are preparing to cut interest rates globally – with the exception of the BoJ – this could provide further fuel for the yellow metal’s rise.

Technical Analysis: Gold Peaks and Plateaus

The price of gold reached a peak and reached a level in the $2,580s. It is overbought according to the relative strength index (RSI), and this indicates that long holders should not add to their long positions.

If the RSI drops again from overbought, it would be a sign to liquidate longs and open shorts. Such a move would likely indicate that Gold is conducting a correction.

XAU/USD 4 Hour Chart

The trend is optimistic in the short, medium and long term. Given that it is a tenet of technical analysis that “the trend is your friend,” the odds are more in favor of the upside. Therefore, if there is a correction, it is likely to be short-lived before Gold resumes its broader uptrend.

The precious metal has posted bearish candles in recent periods (shaded circle). This includes a Doji star, which, however, did not lead to a proper pullback. However, the build-up of bearish candles is a sign that the price may be slowly turning around and about to correct.

In case of a correction, firm support is at $2,550, $2,544 (0.382 Fibonacci retracement from the September rally) and $2,530 (former high).