Gold Price Bulls Exercise Caution Ahead of Crucial FOMC Policy Meeting
- Gold price bulls are approaching the upcoming FOMC policy meeting with caution.
- The USD remains near the year-to-date low, supported by expectations of a 50 bps Fed rate cut.
- Various factors such as China’s economic challenges, US political uncertainty, and geopolitical risks are also contributing to the market sentiment.
As the Asian session unfolds on Tuesday, the Gold price (XAU/USD) is consolidating its recent gains near a fresh all-time high of around $2,589-2,590. Traders are showing hesitancy and opting to stay on the sidelines ahead of the highly anticipated two-day Federal Open Market Committee (FOMC) meeting commencing today. The likelihood of a more aggressive policy easing by the Federal Reserve (Fed) is keeping the US Dollar (USD) under pressure close to its 2024 low, providing support for the non-yielding precious metal.
Additionally, concerns regarding China’s economic slowdown following disappointing macro data released over the weekend, combined with ongoing geopolitical risks, are further bolstering the Gold price. The prevailing fundamental backdrop suggests upward momentum for XAU/USD, although investors are exercising caution ahead of the crucial FOMC policy decision scheduled for Wednesday. Moreover, the slightly overextended conditions on the daily chart warrant prudence before initiating new bullish positions.
Market Movers: Gold Price Supported by Dovish Fed and Safe-Haven Demand
- Rising expectations of a substantial interest rate cut by the Fed have pushed the USD to its lowest level since July 2023 and propelled Gold to a record high on Monday.
- Market indicators suggest over a 60% probability of a 50 basis points rate cut by the US central bank on Wednesday.
- Yields on US government bonds have declined, with the 2-year bond hitting levels not seen since 2022 and the 10-year yield dropping to its lowest since 2023.
- The New York Empire State Manufacturing Index for September exceeded expectations, although it failed to significantly impact USD strength.
- Weaker Chinese economic data points to ongoing challenges in achieving the targeted GDP growth rate for 2024.
- Heightened geopolitical tensions, including threats from Hamas and reports of assassination attempts, are contributing to market uncertainty.
- Investors are awaiting the FOMC decision on Wednesday, along with new economic projections and comments from Fed Chair Jerome Powell.
Technical Analysis: Gold Price Poised for Potential Breakout Towards $2,600
On a technical level, the Relative Strength Index (RSI) on the daily chart is approaching overbought territory, signaling a possible pause in bullish momentum. However, the established uptrend since June and the recent breakout above key resistance levels support the prospect of further gains. Resistance near $2,600 could lead to a test of the trend-channel boundary around $2,620-2,625, with a clear breakout indicating a continued upward trend.
In case of a corrective decline, support is likely near $2,555 and $2,530-2,525, with a breach potentially leading to a drop towards $2,500. Further downside could see Gold prices falling towards $2,470 and $2,464, where a break may shift the bias in favor of bearish traders.
Gold FAQs
- Gold is widely regarded as a safe-haven asset, a hedge against inflation, and a store of value with historical significance.
- Central banks hold significant Gold reserves to support their currencies and enhance economic stability.
- Gold exhibits inverse correlations with the US Dollar, US Treasuries, and risk assets, making it a popular diversification tool.
- Price movements in Gold are influenced by various factors, including geopolitical events, economic indicators, and currency fluctuations.