- Gold prices traded in the positive territory in the Asian session on Monday.
- US Federal Reserve rate cuts and geopolitical risks in the Middle East continue to support precious metals.
- The revival in USD demand may limit the rise in XAU/USD.
Gold prices (XAU/USD) reached all-time highs on Monday, supported by a weaker U.S. dollar. The start of the Federal Reserve’s (Fed) quantitative easing cycle and the possibility of further rate cuts this year could support primary rates. Additionally, rising geopolitical tensions in the Middle East could prompt new interest-haven assets like gold.
Looking ahead, traders will be keeping a close eye on the U.S. Purchasing Managers Index (PMI) data due later on Monday. However, a better-than-expected result could support the dollar and put pressure on dollar-denominated gold prices.
Daily Summary Market Trends: Gold prices remain strong despite global events
- “The forced liquidation of short positions may push the gold price higher into historical highs, as the US dollar generally holds its ground against a basket of major currencies, and rising bond yields create an unfavorable environment for gold,” said FxPro analysts.
- Hezbollah and Israel exchanged heavy fire on Sunday, as the Lebanese militant group launched missiles deep into northern Israeli territory after facing some of the most intense bombardment in almost a year of conflict, per CNN.
- Fed Philadelphia President Patrick Harker said on Friday that the US central bank has effectively navigated a challenging economy over the last few years. Harker further stated that “hard” and “soft” data are both important in decision-making.
- Fed Governor Michelle Bowman noted on Friday that it was appropriate to recalibrate the Fed funds rate level, but she preferred a smaller first move as they have not yet achieved the inflation target.
- Fed Governor Christopher Waller noted on Friday that the decision to cut interest rates by an accelerated 50 bps was the right call, but the US central bank could even pause, depending on further data.
Market Analysis: RSI Overbought, Gold Holds Above $2,600
Gold prices rose on the day. The precious metal continued its strong rally on the daily schedule as the price found major support above the 100-day key exponential moving average (EMA). However, the 14-day relative strength index (RSI) is above the 70.50 average, indicating that the RSI is overbought. This suggests that further consolidation cannot be ruled out before setting the stage for a near-term rally in gold prices.
Gold has reached a major resistance area near the all-time high of $2,625. A decisive move above that could open the way to the psychological $2,700 level.
On the other hand, the first downside target is seen at $2,600. A break above this could lead to a pullback to resistance reversal support at $2,560. The next level of competition is $2,485, the September 6 low.