TLDR:
- Gold reached a new record high of $2,589.03 an ounce
- Federal Reserve expected to cut interest rates this week
- Lower borrowing costs seen as bullish for gold
- Gold supported by weaker US dollar and geopolitical risks
- Retail investor interest in gold is increasing
Gold prices soared to a new all-time high on Monday, reaching $2,589.03 an ounce as investors anticipate the Federal Reserve’s first interest rate cut in over four years.
The precious metal’s rally comes amid a weakening US dollar and growing geopolitical tensions, factors that have contributed to gold’s more than 25% gain this year.
The Federal Reserve is widely expected to lower interest rates by at least 25 basis points at its upcoming meeting on September 17-18. Some analysts are even predicting a more aggressive 50 basis point cut. Lower borrowing costs typically boost the appeal of non-yield-bearing assets like gold, as they reduce the opportunity cost of holding the metal.
Ole Hansen, head of commodities strategy at Saxo Bank A/S, commented on the significance of the Fed’s decision: “Whether the Fed cuts by 25 or 50 bps does matter in the short term. The decision may send a stronger signal about how the Federal Open Market Committee views the current economic outlook.”
The US dollar’s recent weakness has also played a role in gold’s ascent. The Bloomberg Dollar Spot Index dipped 0.3% on Monday, extending its decline over the previous three sessions. A weaker dollar makes gold more affordable for investors holding other currencies, potentially increasing demand.
Geopolitical risks continue to underpin gold prices as well. Ongoing conflicts in the Middle East and Ukraine have bolstered the metal’s appeal as a safe-haven asset. An apparent assassination attempt against former President Donald Trump further fueled demand for gold as investors sought refuge from potential political instability.
Central bank buying has been another key factor supporting gold prices. Many countries have been increasing their gold reserves as a way to diversify away from the US dollar and hedge against economic uncertainties.
Retail investor interest in gold is also on the rise. As the metal continues to break records, more individual investors are turning to gold as a potential store of value and hedge against inflation.
However, some analysts urge caution as gold prices reach new heights. The Relative Strength Index (RSI) on gold’s daily chart is approaching overbought territory, which could signal a potential short-term pullback.
Despite these concerns, the overall trend for gold remains bullish. The metal has been moving along an ascending channel since June, indicating a well-established uptrend. Technical analysts suggest that a decisive break above the $2,600 level could pave the way for further gains.
On the downside, key support levels to watch include $2,565-2,564, followed by the psychologically important $2,500 mark. A break below these levels could trigger a deeper correction.
