XAU/USD consolidates gains near new all-time highs

XAU/USD Current Price: $2,582.67

• Investors await the Federal Reserve’s announcement and the first rate cut in four years.
• Treasury yields fell to fresh annual lows, weighing on the US dollar.
• XAU/USD pulled back modestly from record highs, retains bullish potential.

The price of gold hit a new record high of $2,589.50 a troy ounce on Monday, retreating only modestly from the level and now trading around $2,582.00 in the US session. XAU/USD rallied during Asian trading hours, helped by a Japanese yen (JPY) that put pressure on the US dollar against all major rivals.

The USD/JPY pair fell to its lowest level in over a year as investors eye the interest rate differential between the United States (US) and Japan as both central banks are set to announce their monetary policies this week. The Federal Reserve (Fed) is expected to cut its benchmark interest rate by 25 basis points (bps) on Wednesday, while the Bank of Japan (BoJ) is likely to move in the opposite direction on Friday. The US dollar also fell in anticipation of the Fed announcement as there is a chance the central bank will opt for a further rate cut.

Meanwhile, US Treasury yields are trading near fresh multi-month lows. The 10-year note currently offers 3.63%, while the 2-year note is at 3.55%, the lowest level in two years.

XAU/USD Short Term Technical Outlook

The XAU/USD pair is holding on to modest gains on the day, and technical readings on the daily chart show risk is tilted to the upside, although momentum has eased. The pair finally broke away from a simple moving average (SMA) of 20, currently at around $2,517. The 100 and 100 SMAs are gaining upward traction well below the shortest, reflecting persistent buying interest. Finally, the technical indicators have flattened out, although they are holding well in positive territory.

In the short term, and according to the 4-hour chart, XAU/USD looks poised to correct overbought conditions. Technical indicators are retreating from extreme levels with modest downward slopes, insufficient to anticipate a steeper decline. Meanwhile, a strongly bullish 20 SMA is heading firmly into the $2,550 region, well above the longer ones, which are also advancing.

Support levels: 2,575.20 2,563.60 2,550.00

Resistance levels: 2,590.00 2,605.00 2,620.00