Gold Price Forecast: XAU Nears $2,560 as Fed’s Rate Cut Fails to Propel Gold

Gold (XAU/USD) is trading at $2,561.32, up 0.19% on September 18, 2024, with prices consolidating near a critical pivot point of $2,556.72.

This level has been crucial in determining the metal’s near-term trajectory as traders assess the impacts of the latest Federal Reserve (Fed) monetary policy decision and ongoing geopolitical tensions.

Key Technical Levels to Watch

Immediate resistance is positioned at $2,575.31, followed by higher targets at $2,587.96 and $2,600.40. On the downside, the key support levels stand at $2,542.05, with further declines possible towards $2,526.12 and $2,512.70 if bearish momentum picks up.

Following the Fed's decision to cut the refinancing rate, the price of an ounce of gold exceeded $2,595 and reached a new historical maximum pic.twitter.com/AunoyVQiMo

— S p r i n t e r (@SprinterFamily) September 19, 2024

The 50-day exponential moving average (EMA), currently at $2,551.54, is providing robust support and suggests a continuation of the bullish trend if prices hold above this level. However, a break below $2,550 could trigger further selling pressure, pushing prices toward lower support zones. The Relative Strength Index (RSI) is at 47, indicating neutral market sentiment but with a slight bearish tilt.

Fed’s Rate Cut Fails to Propel Gold

Gold prices have seen heightened volatility following the Fed’s announcement of a 50 basis points (bps) rate cut, reducing the Federal Funds Rate to 4.75%-5.00%. This larger-than-expected cut was part of the Fed’s effort to support an economy that has shown signs of cooling. Fed Chair Jerome Powell stated that this “recalibration” is aimed at maintaining the strength of the labor market while continuing progress on inflation, noting that future decisions will be made on a meeting-by-meeting basis.

Despite this aggressive rate cut, which initially pushed gold prices to a record high of $2,600, the yellow metal failed to hold onto its gains. The market had already priced in much of the rate reduction, leading to a sharp rebound in the US Dollar (USD) and a pullback in gold prices to around $2,560.

The recovery in the USD, fueled by optimism that a large rate cut could lead to a “soft landing” for the US economy, played a significant role in gold’s inability to sustain its rally. Additionally, the yield on US Treasury bonds saw a brief surge after the retail sales data for August, which slightly beat expectations with a 0.1% increase. This limited the appeal of non-interest-bearing assets like gold, leading to a consolidation phase.

Geopolitical Tensions Continue to Support Gold Prices

Beyond the Fed’s actions, ongoing geopolitical risks are offering some support to gold. Renewed tensions in the Middle East, particularly between Hezbollah and Israel, are adding to the demand for gold as a safe-haven asset.

Reports indicate that recent explosions in Lebanon, involving Hezbollah’s communication devices, have resulted in over 20 deaths and hundreds of injuries. This incident, paired with North Korea’s missile tests earlier in the week, is adding to global uncertainty, which typically benefits gold.

Gold and silver prices trade flat post Fed's 50 bps rate cut pic.twitter.com/aHa9XRAPt3

— Chris Wealth Management Pvt Ltd (@chriswealthman1) September 19, 2024

Looking ahead, traders are likely to focus on any further escalation in these geopolitical conflicts, which could push gold prices higher despite short-term technical weakness. The next batch of US economic data, including jobless claims and existing home sales, will also be closely watched for clues on the health of the US economy and the Fed’s future policy decisions.

Conclusion: Mixed Outlook for Gold Prices

Gold prices are currently facing a mixed environment, driven by the dual forces of Fed monetary policy and geopolitical instability. While the recent rate cut by the Federal Reserve provides some downward pressure on the US Dollar, limiting gold’s upside, ongoing geopolitical risks in the Middle East are keeping the metal supported as a safe-haven asset.

With traders now pricing in another 25 bps rate cut at the Fed’s November and December meetings, gold could see renewed bullish momentum if the USD weakens further.

However, a break below the $2,550 support level could trigger sharper declines, making it essential for traders to stay vigilant as new data and geopolitical developments unfold.