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Gold’s Meteoric Rise: Can XAU/USD Keep Climbing as Central Banks Slash Rates?

Hello Traders! 🌟


Today, we focus on the XAU/USD pair, which continues to climb, influenced by ongoing geopolitical tensions and the latest monetary policy shifts from the world’s central banks. Let’s dive into the fundamentals and technicals driving this pair as the week unfolds.


 

Market Overview


As of September 24, 2024, XAU/USD is trading near 2640.00, reaching new record highs in the current bullish momentum. This movement is fueled by the recent decision from the U.S. Federal Reserve to cut interest rates by 50 basis points, alongside the market’s expectations of further easing from other major financial institutions such as the European Central Bank (ECB) and the Bank of England.


U.S. Federal Reserve: The Federal Reserve's recent decision to reduce borrowing costs has spurred the upward movement in gold. Investors are now anticipating that the Fed may execute up to two more adjustments before the end of this year, which would further lower rates by an additional 25 or even 50 basis points. This dovish stance enhances gold’s appeal, as it reduces the opportunity cost of holding this non-yielding asset.


European Central Bank & Bank of England: Forecasts suggest that the ECB and BoE may also implement rate cuts to stimulate their economies. This global trend towards monetary easing is strengthening gold's status as a safe-haven asset, driving the XAU/USD pair higher.


 

Fundamental Insights


Geopolitical Tensions Fuel Safe-Haven Demand: Another crucial factor supporting gold’s rise is the ongoing geopolitical uncertainty, particularly in Eastern Europe and the Middle East. Over the past days, tensions have flared as Israel escalated its strikes against Hezbollah targets in Lebanon, raising the threat of a broader regional conflict. Should Iran enter the fray, this could further destabilize the region, making gold an even more attractive safe-haven asset for investors. Escalations could push gold prices higher as uncertainty increases​.

U.S. Bullion Depository by Cliff, licensed under CC BY-SA 4.0. Source: Wikimedia Commons.

U.S. Presidential Elections: Adding to the uncertainty, the upcoming U.S. presidential elections in November could significantly influence global markets. Investors are closely watching the potential outcome, with expectations that a win by Republican candidate Donald Trump might lead to substantial changes in U.S. foreign policy, impacting geopolitical stability and potentially increasing gold’s attractiveness.


China’s Economic Stimulus: China’s recent economic stimulus efforts have also provided support for gold. The People’s Bank of China (PBoC) introduced significant measures, cutting its reserve requirements and lowering key interest rates to combat deflation and support growth. As China remains the largest consumer of gold, this stimulus package is expected to bolster demand, keeping prices elevated​.


 

Technical Analysis


On the daily chart, Bollinger Bands for XAU/USD show a steady increase, indicating the possibility of further upward movement.


The MACD indicator remains in a positive zone, suggesting that the bullish trend may continue, while the Stochastic oscillator points to a potential overbought condition, signaling caution for short-term traders.


  • Resistance Levels: 2640.00, 2655.00, 2670.00, 2685.00

  • Support Levels: 2623.84, 2613.83, 2600.00, 2589.61



 

Market Considerations


Bullish Momentum: The ongoing dovish stance of the Federal Reserve, paired with geopolitical tensions, is likely to support the XAU/USD pair’s upward trajectory. Investors will closely monitor any further rate cut announcements or escalations in conflicts, which could drive gold to new highs above 2670.00 and beyond.


Potential Risks: On the downside, if global tensions ease unexpectedly, or if the Federal Reserve adopts a more hawkish tone in response to stronger-than-expected economic data, a pullback in gold prices may occur. Key support levels to watch include 2623.84 and 2600.00.


U.S. Economic Data: With multiple economic reports due this week, including U.S. personal consumption expenditures and speeches from Federal Reserve officials, any surprise uptick in inflation or economic growth could shift expectations and lead to increased volatility in XAU/USD prices.


 

What to Watch in XAU/USD


As we move deeper into the week, keep an eye on key developments that could impact XAU/USD:

  • Federal Reserve Updates: Any additional commentary from the Fed could provide clues about future rate cuts, which would likely continue to support gold’s bullish momentum.

  • Geopolitical Conflicts: Ongoing military tensions in the Middle East, particularly between Israel and Hezbollah, may further drive safe-haven flows into gold. A broader escalation involving Iran would likely boost demand even more.

  • Global Central Bank Policies: Rate cut decisions from the European Central Bank and the Bank of England could also impact gold prices, especially if their easing measures surprise the markets.

  • U.S. Elections: As the U.S. presidential election draws nearer, any significant shifts in polling or candidate positioning could influence market sentiment and increase volatility in gold.


 

🔔 Remember to assess all relevant factors and conduct thorough research before making any trading decisions.


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