Gold prices opened the week’s trading with a notable increase of more than 1%, hitting an all-time high of $3728 per ounce, as the yellow metal is set to extend its gains for the second consecutive session.
Gold has gained 42% this year, underpinned by the following reasons:
1: Geopolitical Tensions:
Geopolitical tensions have played a pivotal role in determining global gold market trends. The ongoing war between Russia and Ukraine and unrest in the Middle East have lifted uncertainty, thereby reinforcing investors’ preference for gold as a strategic option to protect their assets.
2: Monetary Policy Easing:
One of the most significant factors supporting gold prices has been the easing monetary stance, with the Federal Reserve cutting interest rates by 25 basis points last week, the first reduction since the beginning of this year. Investors now expect two more 25 basis point rate cuts this year, one in October and the other in December, with probabilities of 93% and 81%, respectively, according to the CME Fed Watch tool.
3: Central Bank Purchases:
Central banks continued to boost their reserves of the precious metal despite rising prices, with the Bank of China extending its series of gold purchases for the tenth consecutive month in August. In addition, Poland’s central bank announced plans last week to increase its gold holdings to 30% of its reserve assets, aiming to strengthen the country’s financial security.
On the economic data front, investors will be waiting for the release of key economic data later this week, particularly the U.S. Core Personal Consumption Expenditures index, the Fed’s favorite inflation measure. Analysts expect annual Core PCE inflation to rise toward 3% in August from a previous 2.9%. A higher-than-expected reading could prompt the Fed to reconsider cutting interest rates in a more aggressive manner.
Finally, the market will focus on comments from a slew of Fed speakers this week, as they aim to gather clues about the U.S central bank’s rate cut path. Yet, the spotlight is expected to be on Fed Chair Jerome Powell, who is scheduled to speak on Tuesday.
Following the Fed’s decision, Powell told reporters that weakness in the US labor market was the main driver behind the rate cut.
Yet Fed officials were not unanimous in support for the rate cut, with one member, suspected to be new Fed Governor Stephen Miran, who was a senior adviser to President Donald Trump prior to his confirmation to the post, calling for a deeper half-point drawdown.
Technically speaking, gold is currently trading within a bullish channel, looking to stabilize above the first weekly resistance level depicted at $3719 to continue breaking records, heading towards the second weekly resistance level at $3754.
On the downside, if gold fails to stabilize above the first weekly resistance level at $3719, it will lose its positive momentum then retest the weekly pivot point at $3673. If the price settles below this point, the yellow metal may retreat towards the support levels of $3638 then $3592.