Gold price consolidates near all-time high, looks to Fed ahead of next leg

• The price of gold is turning cautious ahead of the crucial FOMC policy meeting starting on Tuesday.
• USD remains near YTD low amid bets for a 50bps Fed rate cut and offers support.
• China’s economic woes, US political uncertainty and geopolitical risks also act as tailwinds.

The price of gold (XAU/USD) is seen oscillating in a narrow trading band during the Asian session on Tuesday and consolidating its recent gains to a new all-time high around the $2,589-$2,590 region reached the previous day . Traders now appear reluctant and are choosing to sit on the sidelines ahead of the two-day meeting of the Federal Open Market Committee (FOMC) starting today. Heading into the key central bank event risk, the prospect of more aggressive policy easing by the Federal Reserve (Fed) keeps the US dollar (USD) depressed near 2024 lows and continues to act as a tailwind for the metal unprofitable yellow. .

Meanwhile, disappointing Chinese macro data released over the weekend added to worries about a slowdown in the world’s second-largest economy. Apart from this, persistent geopolitical risks, which tend to benefit traditional safe-haven assets, are proving to be another factor supporting gold prices. The fundamental backdrop suggests the path of least resistance for XAU/USD is to the upside, although investors may prefer to wait for Wednesday’s crucial FOMC policy decision. Moreover, the slightly overdone conditions on the daily chart call for some caution before placing new bullish bets.

Daily Digest Market Movers: Gold price remains supported by favorable Fed flow, safe haven

• Growing bets on an excessive rate cut by the Federal Reserve dragged the U.S. dollar to its lowest level since July 2023 and lifted gold’s yield-free price to a fresh record on Monday.
• According to CME Group’s FedWatch tool, markets are currently pricing in a more than 60 percent chance that the U.S. central bank will cut borrowing costs by 50 basis points on Wednesday.
• The rate-sensitive 2-year U.S. Treasury yield fell to its lowest since September 2022, and the benchmark 10-year U.S. Treasury yield fell to its weakest since June 2023.
• The New York Empire State Manufacturing Index came in at 11.5 for September, much better than the -3.9 expected and -4.7 previously, though it didn’t impress the USD bulls much.
• A string of subdued Chinese data released over the weekend pointed to greater economic weakness and challenges in meeting the official target of around 5 percent GDP growth in 2024.
• Hamas has issued a warning saying hostages will be sent to coffins if Israel continues its military attacks and does not agree to a deal, raising the risk of a wider conflict in the Middle East.
• Additionally, reports of a second assassination attempt on Republican presidential candidate Donald Trump are adding to jitters and acting as a tailwind for XAU/USD.
• Bullish traders, however, are taking a brief pause and are now awaiting the outcome of a two-day FOMC monetary policy meeting before positioning for the next step of a directional move.
• The Fed will announce its decision on Wednesday, which will be accompanied by new economic projections, including the so-called dot-plot, and followed by the post-meeting press conference.
• Investors will be closely watching Fed Chairman Jerome Powell’s comments for clues on the path to rate cuts, which in turn will drive demand for the USD and provide fresh impetus to the commodity.

Technical Outlook: Gold price looks poised to challenge the trend-channel boundary around the $2,600 mark

From a technical perspective, the Relative Strength Index (RSI) on the daily chart has moved to the point of entering the overbought zone and preventing the bulls from placing new bets. That said, the rally along an ascending channel since June indicates a well-established near-term uptrend. Additionally, the recent breakout through the $2,525-$2,530 supply area supports the prospects for further gains. Any further move higher, however, is likely to face strong resistance near the $2,600 round figure, above which the gold price could rise to test the barrier of the ascending channel, currently fixed around the 2,620- $2,625. Sustained strength beyond the latter will mark another breakout and pave the way for another near-term appreciation move.

On the other hand, any corrective decline now seems to attract some buyers near the horizontal area of ​​$2,555. This should help limit the downside near the $2,530-$2,525 resistance level, now turned into support, below which the gold price could drop back to the psychological $2,500 level. A convincing break below the latter could trigger some technical selling and leave XAU/USD vulnerable to accelerate the slide towards the $2,470 horizontal support. This is closely followed by the confluence of $2,464, comprising the ascending channel support and the 50-day Simple Moving Average (SMA), which, if broken, could shift the bias in favor of bearish traders.