Gold Reaches New Record Highs Following Fed’s Rate Cut
- Gold surged to a new high after the Fed’s decision to reduce borrowing costs by 0.50% on Wednesday.
- Global central banks are anticipated to follow the Fed’s lead, boosting Gold’s appeal.
- Technical indicators suggest Gold is in a strong uptrend across all time frames.
Gold (XAU/USD) broke to a new record high near $2,610 on Friday as expectations rose for central banks worldwide to align with the Federal Reserve (Fed) by easing policy and cutting interest rates. Lower interest rates bolster Gold’s attractiveness by reducing the opportunity cost of holding the non-interest-paying asset, attracting more investors.
The Global Response to Fed’s Rate Cut
Following the Fed’s rate cut, the South African Reserve Bank (SARB) trimmed its key interest rate by 25 basis points (bps) on Thursday, marking the first cut since the onset of the Covid pandemic in 2020. Similarly, the Central Bank of the Philippines slashed interest rates by 250 bps to 7.0% at its recent meeting. The Reserve Bank of India (RBI) is now widely expected to follow suit with a rate cut in alignment with the Fed.
While the People’s Bank of China (PboC) maintained its key lending rates at the September fixing, the one and five-year loan prime rates are at record lows of 3.35% and 3.85%, respectively, following a surprise cut in July. On the other hand, the Bank of Japan (BoJ) refrained from adjusting rates at its most recent meeting, despite some speculation about a potential rate hike.
Gold’s Record-Breaking Performance
Gold soared above its previous record highs set post the Fed’s decision, surpassing the $2,600 mark. However, the Fed’s positive US growth outlook, anticipating stability at around 2.0% annually until the end of 2027, tempered Gold’s gains. This optimistic economic outlook favored sentiment but weighed on the safe-haven appeal of Gold, causing a swift decline post-peak.
Furthermore, escalating geopolitical tensions, such as Israel’s recent military actions in Lebanon, have heightened risk aversion, potentially driving safe-haven flows towards Gold.
Technical Analysis and Future Outlook
Gold broke new ground on Friday, surpassing the previous record high of $2,600 set post the Fed meeting. Technical analysis indicates a favorable outlook for Gold, with dominant long, medium, and short-term uptrends supporting further upside potential.
XAU/USD Daily Chart Analysis
Key targets for Gold include $2,650 and $2,700, with the Relative Strength Index (RSI) on the daily chart indicating room for additional upside. Traders are advised to monitor the RSI for potential overbought conditions, signaling a need to reassess long positions.
In the event of a correction, key support levels are identified at $2,550, $2,544 (0.382 Fibonacci retracement), and $2,530 (former range high).
Economic Indicator: Fed Interest Rate Decision
The Federal Reserve (Fed) plays a crucial role in shaping monetary policy by setting interest rates to achieve its dual mandates of maintaining stable inflation at 2% and promoting full employment. Changes in interest rates impact the strength of the US Dollar, influencing capital flows and global economic dynamics.
For more information on the Fed’s interest rate decisions and their implications, you can access the Federal Reserve website.