Gold hits new high after consumer confidence declines

• Gold hits new record high after US consumer confidence data fell well below expectations.
• The data reinforces bets that the Federal Reserve will need to take more drastic easing measures – a positive for Gold.
• XAU/USD is overbought but is rising on all time frames and with the trend being your friend, it is likely to continue.

Gold (XAU/USD) hits another record high of $2,670 a troy ounce on Wednesday after an unexpected drop in US consumer confidence data on Tuesday raised bets for more aggressive easing and deeper interest rate cuts from the Federal Reserve (Fed).

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.

The biggest stimulus boost since the Covid pandemic, announced by the People’s Bank of China on Tuesday, including aggressive cuts in borrowing costs, among a package of measures to inflate the sagging economy, also supported gold gains.

Escalating tensions in the Middle East, following several Israeli bombings of Hezbollah targets in Lebanon, further pushes refuge flows into the yellow metal.

Gold rises as US consumers lose confidence

Gold is hitting a new high after more bad news on the US economy suggests the Fed may need to keep cutting interest rates sharply.

The Conference Board’s consumer confidence index fell to 98.7 in September from an upwardly revised 105.6 in August. The result was well below the consensus estimate of 103.9.

After the data release, market-based odds that the Fed would make another double dose of 50 basis point (bps), or 0.50%, rate cut rose to about 60% from 50% previously, according to CME’s FedWatch tool .

Federal Reserve Governor Michelle Bowman’s (voter – solicit) comments on Tuesday may have taken some of the edge off the bad news, however, after she said, “with no clear signs of material weakening or fragility, in my view, the start of rate-cut cycle with a 1/4 percentage point move would have better consolidated power under economic conditions.”

Bowman’s comments scored a 7.0 on FXStreet’s FedTracker, which rates the tone of Fed officials’ speeches on a scale of 0 to 10 using a custom AI model.

Technical Analysis: Gold Extends Strong Uptrend

Gold is hitting new highs on Wednesday and given the principle in technical analysis that “the trend is your friend”, the odds further favor the yellow metal, in line with the prevailing trends in the short, medium and long term.

XAU/USD Daily Chart

The next upside targets are the round numbers $2,700 and then $2,750. Confirmation would come from a break above the $2,670 high.

Gold has entered overbought levels, according to the Relative Strength Index (RSI) on the daily chart. This advises traders not to add to their long positions. If gold breaks out of overbought, it will be a sign for them to close out long positions and sell short, as it would suggest that a deeper correction is underway.

If a correction develops, firm support is at $2,600 (September 18 high), $2,550 and $2,544 (0.382 Fibonacci retracement of the September rally).