Gold hits new highs on expectations of global interest rate cuts

• Gold hits new highs on Friday as central banks around the world look to follow the Fed’s lead.
• The precious metal hit a new high after the Fed’s decision to cut borrowing costs by 0.50% on Wednesday.
• As traders say, “the trend is your friend” and technically, gold is in a strong uptrend on all time frames.

Gold (XAU/USD) hit a new record near $2,610 on Friday on heightened expectations that global central banks will follow the Federal Reserve (Fed) in easing policy and cutting interest rates. Lower interest rates are positive for gold because they lower the opportunity cost of holding the non-interest-paying asset, making it more attractive to investors.

Following the Fed’s decision on Wednesday, the South African Reserve Bank (SARB) cut its key interest rate by 25 basis points (bps) on Thursday – the first cut since the Covid pandemic in 2020. The Central Bank has The Philippines cut interest rates by 250 basis points. to 7.0% at Friday’s meeting. The Reserve Bank of India (RBI) is now also expected to cut interest rates in sympathy with the Fed at its next meeting.

Although the People’s Bank of China (PboC) kept its key lending rates unchanged from Friday’s September fix, prime rates for one-year and five-year loans are at record lows of 3.35% and 3.85% respectively %, after the bank made a surprise. cut in July. Meanwhile, the Bank of Japan (BoJ) left rates unchanged at its meeting on Friday, despite speculation of a rate hike in the offing.

Gold surpasses previous records

Gold surpasses previous highs set on Wednesday of $2,600 following the Fed’s decision. At this meeting, the US central bank decided to cut interest rates by a double dose of 50 bps (0.50%).

However, the upside for the yellow metal was capped by the Fed’s broadly positive outlook for US growth, which the central bank saw as holding steady at around 2.0% a year until the end of 2027. This suggested a “soft landing” profile for the economy, which is generally positive for sentiment. However, this was probably negative for Gold-haven. Thus, the precious metal fell rapidly after reaching the peak.

At the same time, increased geopolitical risk aversion could generate favorable refuge flows. Israel’s use of exploding pagers and walkie-talkies to eliminate and injure Hezbollah operatives in Lebanon has raised the risk of an escalation in the Middle East conflict, potentially underpinning the precious metal.

Technical Analysis: Gold Makes New High as Uptrend Extends

Gold hit new highs on Friday, above the previous record high of $2,600 set after Wednesday’s Fed meeting.

The adage of technical analysis is that “the trend is your friend,” meaning that the odds favor a greater upside for the yellow metal in line with the dominant long-term, medium-term, and short-term trends.

XAU/USD Daily Chart

The next upside targets are the round numbers: first $2,650 and then $2,700.

Gold is still not overbought, according to the relative strength index (RSI) on the daily chart above, which also leaves room for more upside.

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 a correction develops, firm supports are at $2,550, $2,544 (0.382 Fibonacci retracement from the September rally) and $2,530 (former high).