Gold prices have reached an unprecedented high, breaking through the $2,550 mark as speculation grows about a potential interest rate cut by the US Federal Reserve (Fed). The price of gold surged to a new all-time high of $2,552 per ounce, marking a significant rally after bouncing off a daily low of $2,511.
The surge in gold prices comes on the back of recent US economic data that suggests the Fed may lower interest rates in its upcoming meeting.
In addition, the Producer Price Index (PPI), which measures factory inflation, also showed unexpected results. August’s PPI increased by 1.7% year-on-year, slightly below the anticipated 1.8%. Meanwhile, core PPI, which excludes volatile items, rose from 2.3% to 2.4%, but still fell short of the expected 2.5%. On a monthly basis, headline PPI expanded by 0.2%, surpassing the forecast of 0.1%, while core PPI increased by 0.3%, up from 0.2% the previous month.
The reaction in the markets has been significant. The US Dollar Index (DXY), which tracks the performance of the dollar against a basket of major currencies, fell by 0.29% to a daily low of 101.44. This decline in the dollar’s value further bolstered gold’s appeal as a safe-haven asset. Conversely, US Treasury yields saw an uptick, with the 10-year Treasury note rising to 3.689%, adding to the complex dynamics influencing gold prices.
The CME FedWatch Tool, which gauges market expectations for Federal Reserve policy, indicates an 85% probability of a 25 basis point rate cut at the next Fed meeting. This high likelihood of a rate cut has driven gold prices higher as investors seek refuge in the precious metal in anticipation of a low-rate environment.
Adding to the bullish sentiment for gold, the European Central Bank (ECB) recently lowered rates by a quarter percentage point, which also contributed to the weakening of the US dollar. The ECB’s move has encouraged investors to turn to gold as a hedge against currency fluctuations and economic uncertainty.
Gold traders are now closely watching upcoming economic indicators, including the Consumer Sentiment survey from the University of Michigan, scheduled for release on Friday. This survey could provide further insights into consumer confidence and spending, influencing gold market dynamics.
The rally in gold prices has been supported by broader market trends. Wall Street has posted gains, reflecting investor optimism despite economic uncertainties. The combination of weaker economic data, lower interest rate expectations, and a declining dollar has created a favorable environment for gold.
Looking at the technical outlook, gold prices have managed to maintain their momentum above the $2,500 level, despite some losses. The metal has broken through previous resistance levels at $2,531 and $2,550. If the uptrend continues, the next key resistance levels are seen at $2,575 and $2,600.
However, if prices face a pullback, sellers would need to break below $2,550, followed by the August 20 high of $2,531, to test support levels at $2,500. Further weakness could lead to support at the August 22 low of $2,470 and the May 20 peak of $2,450.
