The price of gold remains close to record highs, awaiting a key Fed decision before the next stage

• Gold price pulls some buying dip and reverses some of the overnight corrective slide.
• Bets on a 50bps Fed rate cut keep a lid on the USD recovery attempt and provide support.
• Bulls appear reluctant to place aggressive bets ahead of key central bank risks.

The price of gold (XAU/USD) fell modestly from near record highs around the $2,589-$2,590 area reached the previous day and ended in the red for the first time in four days on Tuesday. The decline was led by some profit-taking, albeit lacking any follow-through, as traders opted to wait on the sidelines ahead of key risks from this week’s central bank event before placing new directional bets. The Federal Reserve (Fed) will announce its decision at the end of a two-day meeting later this Wednesday, which will be followed by the Bank of England (BoE) meeting on Thursday and the Bank of Japan (BoJ) policy update on Friday. .

Meanwhile, extended pricing for an excessive rate cut by the Fed is failing to help the US dollar (USD) capitalize on the overnight rebound from July 2023 lows and is reviving demand for the gold price without yield. However, a 25 basis point (bps) rate cut could bode well for the USD and hurt commodities. That said, the risk of a further escalation of conflict in the Middle East, along with political uncertainty in the US ahead of the November presidential election, could provide support for the precious metal and limit downside. This in turn suggests that any corrective pullback could still be seen as a buying opportunity.

Daily Digest Market Movers: Gold prices continue to benefit from a combination of factors ahead of the Fed

• On Wednesday, bets on more aggressive policy easing by the Federal Reserve will help gold prices attract some buyers on the downside on Wednesday and stop a modest overnight retreat from near the all-time high.
• According to the CME Group’s FedWatch tool, markets are currently pricing in a 65 percent chance that the U.S. central bank will cut borrowing costs by 50 basis points at the end of a two-day meeting later today.
• The benchmark U.S. 10-year Treasury yield rebounded from a 16-month low after Tuesday’s release of U.S. retail sales data, though it lacked a trailing edge and limited the U.S. dollar’s recovery.
• The U.S. Census Bureau reported that U.S. retail sales rose 0.1 percent in August, compared with an expected 0.2 percent decline, while sales excluding cars missed consensus estimates and rose by 0.1%.
• The upbeat data prompted a short-covering move in the dollar during the day and took it away from the lowest level since July 2023, although the positive move is fraying amid favorable Fed expectations.
• At least nine people were killed in simultaneous explosions of portable pagers used by Hezbollah members in Lebanon, raising the risk of a wider war in the Middle East and supporting the metal of refuge.
• Meanwhile, North Korea, days after offering a glimpse of a facility built to enrich uranium for nuclear bombs, on Wednesday test-fired several ballistic missiles toward the eastern seas of South Korea and Japan.
• Market focus remains glued to the critical FOMC policy decision, which together with updated economic forecasts, including the so-called “dot plot”, should provide further impetus to XAU/USD.

Technical Outlook: Gold price looks to rise further, may try to test the resistance of the ascending channel near $2,610

Technically, bulls may now wait for a move beyond the $2,589-2,590 region or the all-time high reached on Monday before placing new bets. Further upside has the potential to lift the price of gold above the $2,600 mark to test the upper limit of a near-term ascending channel extending from levels below $2,400 reached in late June. The said barrier is currently fixed near the $2,609-2,610 area, which, if decisively cleared, will confirm another breakout and set the stage for the extension of the recently well-established uptrend.

On the other hand, some further selling below the overnight swing around the $2,561-2,560 area could pave the way for deeper losses towards the strong horizontal resistance breakout point of $2,530-2,525. Any further declines are more likely to attract new buyers and remain capped near the psychological $2,500 level. The latter should act as a key pivot point, which, if decisively broken, could drag the price of gold to the confluence of $2,475-$2,470 – comprising the 50-day SMA and the lower boundary of the aforementioned trend channel .