Gold nears new high of $2,600 after Fed meeting

• Gold rose after the Federal Reserve cut interest rates by a double dose of 50 bps.
• The precious metal failed to hang on to the gains and turned around before recovering again on Thursday.
• Gold’s limited rise could be due to the Fed’s overall assessment of the US economy as good.

Gold (XAU/USD) is rising and trading at $2,580 on Thursday, after falling to $2,540 following the US Federal Reserve’s (Fed) interest rate decision the previous day.

The yellow metal hit a new record high of $2,600 on Wednesday, before falling sharply after the much-anticipated Fed meeting where they decided to implement a 50 basis point (0.50%) cut in the federal funds rate . This lowers the Fed’s benchmark rate to a range of 4.75%-5.25% from 5.25%-5.50% previously.

Gold tops after Fed meeting

Gold hit a record high of $2,600 after the Fed followed through with a 50 bps rate cut on Wednesday, although the yellow metal failed to hold fresh highs. Several analysts attributed the lack of volatility (financial asset prices changed only modestly after the announcement) to the Fed’s easing cycle which was already priced in by financial markets before the event.

“Is it the price of the relaxation cycle yet?” Thomas Mathews, head of markets, Asia Pacific for Capital Economics, opined in a note on Thursday. “Markets barely reacted to the Fed’s 50bps rate cut overall, and our base case is that further cuts won’t move the needle much either.”

Gold may have been capped by the virtually clean bill of health given to the US economy by the Fed. Gross Domestic Product (GDP) growth forecasts were only slightly revised up to 2.0% in 2024 from 2.1% previously and are expected to remain at this level until the end of 2027.

“Accompanying the larger cut was a signal of a strong fundamental (US) economy, with no suggestion that a sustained 50 bps cut was likely,” said Jim Reid, global head of research at Deutsche Bank. “Growth projections were little changed, and the dot chart showed the median FOMC member expecting the fed funds range to be 4.25-4.50% at the end of the year.”

Weaknesses in the labor market now appear to be the Fed’s major concern. The central bank has revised down its forecast for the unemployment rate to 4.4% in 2024-25 and sees it falling again to 4.2% by the end of 2027. So the focus on markets from now on is likely to focus on how well he is forced to work. the market resists.

But even the labor situation is not yet dire enough to give gold a boost.

“Unemployment claims are actually still at very low levels, nothing like what you’d see in a recession, and even quit rates and JOLTS rates are still higher than they’ve been in the last ten years,” said Janet Henry . , Global Chief Economist at HSBC. The higher unemployment rate was partly due to high immigration from the US, she added, rather than inherent weakness.

Labor market values ​​are a lagging indicator, Henry said, so there is a risk of unpleasant surprises in the future.

“If we get a wage shock in November, then we might go back to talking about another 50 bps cut,” the economist said in the Bloomberg News interview.

Technical Analysis: Gold recovers after pullback

Gold is recovering from a volatile 24-hour period that saw it climb to a new high of $2,600, but then fell back to a low in the $2,540s. It is now rebounding from its lows and is already nearly a percentage point higher on Thursday at the time of writing.

Based on the technical analysis dictum that “the trend is your friend”, the odds favor higher growth in line with the dominant trends in the long, medium and short term.

Gold’s correction may still have some work to do, but the mainstream is drifting higher.

XAU/USD Daily Chart

Gold is not yet overbought on the daily chart, according to the Relative Strength Index (RSI), which also leaves room for more upside.

If it breaks above $2,600, it will show a higher high and confirm that the uptrend continues. The next target above would be the round numbers: $2,650 and then $2,700.

However, if gold’s RSI enters the overbought zone at the close, it will advise traders not to add to their long positions.

If it enters and then exits overbought, it will be a sign to close the longs and sell, as it would suggest that a deeper correction is underway.

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