Gold price advances to multi-month top as Fed rate cut bets continue to weigh on USD

• Gold price gains positive traction for the sixth straight day and refreshes its multi-month top.
• Dovish Fed expectations, falling US bond yields and a bearish USD continue to lend support.
• The overbought RSI on the daily chart warrants caution before placing fresh bullish bets.

Gold price (XAU/USD) builds on this week’s breakout momentum through the $2,008-2,010 horizontal barrier and scales higher for the fifth successive day on Wednesday. This also marks the sixth day of a positive move in the previous seven and lifts the commodity to a near seven-month peak, around the $2,052 area during the Asian session. The near-term outlook for the precious metal, meanwhile, remains bullish in the wake of the prevalent US Dollar (USD) selling bias, fuelled by dovish Federal Reserve (Fed) expectations.

Investors now seem convinced that the Fed will no longer raise interest rates. Moreover, the implied Fed funds futures suggest roughly 85 bps of cumulative interest rate cuts by December 2024, which, along with the underwhelming US bond auction on Tuesday, leads to a further decline in the US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond fell to 4.274%, or its lowest level since mid-September, dragging the USD to its lowest level since August 11 and boosting demand for the non-yielding Gold price.

Daily Digest Market Movers: Gold price continues to draw support from dovish Fed expectations and weaker US Dollar

• The US Dollar dives to over a three-and-half-month low amid rising bets for a series of rate cuts by the Federal Reserve in 2024 and continues to boost the Gold price.
• Fed Governor Christopher Waller said on Tuesday that he could see a point where the central bank might start lowering rates if inflation continues to ease over the next few months.
• Waller added that he is increasingly confident that policy is currently well-positioned to slow the economy and get inflation back to the central bank’s 2% target.
• Fed Governor Michelle Bowman offered a contrasting view and reiterated her belief that more rate hikes likely will be needed as evolving dynamics keep inflation elevated.
• Markets expect the Fed to hold its key lending rate steady in a target range between 5.25%-5.5% in December, though officials have stressed the need to remain vigilant on inflation and keep their options open.
• The Israel-Hamas ceasefire deal has been extended by two days beyond its original expiration on Tuesday morning, which could dim the metal’s safe-haven appeal.
• Hamas released about 50 hostages as part of the original agreement and is expected to free another 20 over the next two days in exchange for the release of Palestinian prisoners by Israel.
• Traders now look to the prelim US GDP report, which is expected to show that the world’s largest economy expanded by a 5% annualized pace during the third quarter as against the 4.9% estimated.
• The market attention will then shift to the US Core PCE Price Index – the Fed’s preferred benchmark for measuring longer-term inflation trends on Thursday.

Technical Analysis: Gold price needs to consolidate its recent strong to a multi-month peak before the next leg up

From a technical perspective, this week’s sustained breakout through the $2,008-2,010 barrier and the subsequent move-up support prospects for a further appreciating move. That said, the Relative Strength Index (RSI) on the daily chart is flashing slightly overbought conditions and warrants some caution for bullish traders. Hence, it will be prudent to wait for some near-term consolidation or a modest pullback before positioning for additional gains.

Any corrective pullback below the Asian session low, however, is likely to find decent support and attract fresh buyers near the $2,035-2,034 region. This should help limit the downside for the Gold price near the $2,020 level, which should now act as a key pivotal point. On the flip side, some follow-through buying beyond the $2,052 region, or a multi-month top touched earlier this Wednesday, will set the stage for a move towards challenging the all-time high, around the $2,079-2,080 zone set in May.