Key points:
Gold prices held close to record highs on Monday as growing optimism around a U.S. interest rate cut bolstered the metal’s allure. Spot gold edged 0.2% lower to $2,501.19 per ounce by 0042 GMT, just shy of Friday’s all-time high of $2,509.65. Meanwhile, U.S. gold futures inched up 0.1% to $2,540.00.
The potential for an interest rate cut by the Federal Reserve has been driving demand for gold. Traders are increasingly confident that a rate reduction is on the horizon, with a 75.5% probability of a 25 basis point cut and a 24.5% chance of a 50 basis point cut priced in. The prospect of lower interest rates typically makes non-yielding assets like gold more attractive.
See: Gold on the rise as seen on the VT Markets app.
Gold closed at 2499.87, just shy of the psychological resistance level of 2500, after hitting a high of 2510.97. From a technical front, the trend remains strong with a 1.77% gain, as indicated by the upward movement of the MA (5, 10, 30) lines. The MACD (12, 26, 9) is also showing bullish momentum, with the histogram turning green, suggesting further upside potential.
If the price can break and hold above the 2500 resistance level, it could signal a continuation of the bullish trend towards the next resistance at 2520. However, if the price faces rejection at this level, a pullback towards the support levels at 2475 and 2450 could be expected.
Friday’s U.S. economic data also pointed towards easing inflationary pressures. A drop in single-family homebuilding in July, driven by higher mortgage rates and elevated home prices, suggests that inflation may be cooling. This aligns with last week’s robust retail sales data and unexpectedly low unemployment claims, which have revived confidence in the U.S. economy.
However, market participants remain cautious ahead of key events this week. The minutes from the Federal Reserve’s July policy meeting, due on Wednesday, and Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole symposium on Friday, are expected to provide further insights into the Fed’s thinking and potential policy moves.
Federal Reserve Bank of Chicago President Austan Goolsbee added a note of caution, stating that while the U.S. economy shows no signs of overheating, the central bank should avoid maintaining a restrictive policy stance longer than necessary. This dovish sentiment further supports the case for an upcoming rate cut.
In the broader metals market, spot silver slipped 0.22% to $28.94 per ounce, platinum dipped 0.1% to $953.06, and palladium fell 0.8% to $943.46.
Meanwhile, geopolitical tensions in the Middle East added a layer of uncertainty. Israeli strikes in Gaza killed 19 people, including six children, on Sunday, ahead of a visit by U.S. Secretary of State Antony Blinken aimed at advancing ceasefire negotiations. Although these tensions have not significantly impacted gold prices, any escalation could reinforce gold’s appeal as a safe-haven asset.
You might be interested: 4 reasons why traders flock to safe-haven gold during global political tensions
Traders and investors will closely monitor this week’s economic and geopolitical developments, which could further influence gold prices and market sentiment.
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