The gold price continues to soar, hitting a fresh record high on Friday as bets for a larger Fed rate cut weigh on the USD and boost the precious metal. Geopolitical risks also contribute to driving flows towards the safe-haven XAU/USD. The softer-than-expected US Producer Price Index (PPI) report released on Thursday provided further evidence that inflation was subsiding and lifted bets for an outsized interest rate cut by the Federal Reserve in September.
Persistent geopolitical risks from conflicts in the Middle East and the ongoing Russia-Ukraine tensions are also supporting demand for gold. The fundamental backdrop suggests that the path of least resistance for XAU/USD remains to the upside. Traders are cautious ahead of next week’s key central bank events, with the Fed and the Bank of Japan scheduled to announce their decisions. The dovish Fed expectations, along with Middle East tensions, contribute to the bullish breakout of gold price through a multi-week-old trading range.
Recent economic data has fueled expectations for a larger Fed interest rate cut, with both the headline PPI and core PPI missing expectations. Additionally, the number of individuals applying for unemployment insurance benefits increased, signaling potential economic challenges. Investors are now pricing in over a 40% chance of a 50-basis point rate cut by the Fed next week. Increasing tensions in the Middle East, including Israeli airstrikes on Iranian-linked targets in Syria and Russian warnings regarding Ukraine, are adding to the uncertainty.
From a technical standpoint, the recent uptrend in gold price indicates a well-established ascending channel. A close above key resistance levels and the previous all-time peak signal further bullish momentum. Oscillators on the daily chart suggest room for further gains, with the next target being the trend-channel resistance near the $2,600 mark. On the downside, support is expected near the $2,530-2,525 range, with $2,500 serving as a strong base for short-term traders. A break below key support levels could shift the bias in favor of bearish traders.
Investors are eagerly awaiting the release of the Preliminary Michigan US Consumer Sentiment Index to gauge short-term opportunities around XAU/USD. The gold price remains on track to register strong weekly gains, driven by dovish Fed expectations, geopolitical risks, and technical indicators pointing towards further upside potential. Traders should monitor key central bank events and geopolitical developments for potential market-moving catalysts in the coming days.
