Gold (XAU/USD) traded at high levels of $2,560 on Friday, rising around 0.40% on the day after setting new highs on Thursday when it decisively broke through a range it had been oscillating in since peaking on August 20.
The initial catalyst for the breakout was the release of mixed Factory Gate inflation data, or producer price index (PPI) data from the US for August. The numbers showed a deeper-than-expected slowdown in the headline PPI, and although the core PPI remained flat, the market reacted as if the data were deflationary. .
Gold continues to rise after media ignited controversy over Fed rate cut by 0.50% vs. 0.25%
Gold continued to rise during Friday’s Asian session due to the revival of debate over whether the Federal Reserve will cut interest rates by 0.50% or 0.25% at its meeting next Wednesday .
The release of core inflation data for high consumer prices, in the form of the consumer price index on Wednesday, appeared to have set hopes of a “huge” 0.50% (50 basis point) cut. However an article written by the Fed comptroller in the Wall Street Journal, as well as comments from former New York Fed Chairman William Dudley , suggested that it is still necessary to consider a 0.50% rate cut. This, in turn, has led to lower US Treasury yields, and the sell-off of the US , the rise in the price of gold .
Low interest rates are positive for gold because they reduce the alternative cost of holding non-interest assets, making them more attractive to investors.
Dollar Falls, Gold Records High on Interest Expectations
The U.S. dollar fell to its lowest levels this year on Friday against the yen while gold hit a record high as investors sharply increased their bets on a U.S. Federal Reserve rate cut next week. .
The rand rose more than 1% to 17.7609 rand per dollar on Friday morning. After hitting R19.31 in February this year, the rand reached its highest level this year at R17.62 at the end of last month. .
Traders raised their bets back to 45% to cut the US interest rate by 50 basis points on September 18, according to LSEG data at 0510 GMT, from around 28% before both FT-ME articles and Wall Street Journal described the decision as “a difficult decision.””.
Former New York Federal Reserve Chairman Bill Dudley later said at a forum in Singapore: “There is a strong case for a 50 basis point rate cut.”.
“This marks another shift in the discussion about a rate cut by the Fed,” said Tony Sycamore, an analyst at IG, pointing to the tug-of-war in bond futures and the USD/JPY rate in particular. .
Everyone thought we were back on track to cut rates by 25 basis points, now the 50 basis point level is suddenly on the table
The dollar fell 0.81% to 140.645 yen, the weakest level since Dec. 28. The yen also received support this week from hawkish comments from Bank of Japan officials, with policy councilman Naoki Tamura saying on Thursday that he was “concerned about escalating inflation risks.
Effects of Interest Cuts on Gold and Oil Price Recovery
The Fed is scheduled to cut interest rates at its September 18 meeting. The meeting could bring new momentum to commodity prices, with gold being the biggest beneficiary..
On the other hand, oil and natural gas prices are also rising after falling significantly due to supply disruptions..
After Fed Chairman Powell confirmed a rate cut at the Jackson Hole conference, gold prices rose. Gold benefits from lower borrowing costs because it does not pay interest..
The rate at which the Fed will cut interest rates is now the question facing the gold market. The latest US jobs data report was mixed, adding to the debate over whether the Fed would cut interest rates by 25 basis points or 50 basis points. However, whatever the case, gold prices could rise to new highs..
Looking at the technical side, gold prices are currently trading at $2569, the next target is $2600, supported by the crossover of the 50 and 100 SMA on the four-hour chart..
Oil prices in recovery mode
Oil prices continued to recover despite supply disruptions in the Gulf of Mexico. The price of Brent crude on the Intercontinental Exchange rose more than 1.9% in one day, to close to $72. The effects of Hurricane Francine on the supply chain continue to help. According to the latest statistics from the Office of Safety and Environmental Enforcement, the hurricane shut down 41.74% of U.S. oil production in the Gulf of Mexico..
However, the IEA’s monthly oil market report offered a bleak outlook. According to IEA forecasts, global oil consumption increased by just 800,000 barrels per day in the first half of the year and is now expected to expand by 900,000 barrels per day in 2024. China was the main reason behind this slow development in demand..
Gold continues to rise on economic uncertainty
Today, gold prices rose to $2,569 an ounce, illustrating the bullish momentum fueled by global economic uncertainty and expectations of the Fed’s upcoming decision. With inflation fears and interest rate hikes on the horizon, investors are keeping an eye on the movement of gold as it is a safe-haven asset.
Support and resistance levels
Gold (XAU/USD) broke through the $2,472 resistance level, which has served as a strong cap since June. This breakout points to the potential for further appreciation for the precious metal, with the next major resistance at $2,600.
On the downside, immediate support can be found around $2,376, a level that has provided a safety net during several recent pullbacks. If gold fails to maintain its upward trajectory, a drop below this support could push prices towards $2,285, which has been intact since May.
Market sentiment and outlook
Gold prices rise as investors remain cautious about the Fed’s upcoming policy update. If the Fed signals a bolder rate hike, volatility in the gold market could increase. Despite this, gold remains one of the assets of choice for those seeking protection against inflation.
Traders are watching to see if the price will pass the key resistance level at $2,600 soon. If this level is exceeded, we may expect further gains. However, if the price pulls back to test support at $2376, it could signal a consolidation phase before the next important move.
Australia’s S&P/ASX 200 rose 0.30%, ending the session at 8,099.90, led by gains in the gold, metals, mining and materials sectors.
