Gold (XAU) Price Forecast: Near Record Highs as Powell Signals Rate Cuts

Gold Marches Toward Record Highs as Powell Endorses Rate Cuts

Gold prices edged closer to their all-time high on Monday, driven by a weakening U.S. dollar and dovish signals from Federal Reserve Chair Jerome Powell. Powell’s recent comments have fueled expectations of an imminent interest rate cut, providing a significant boost to gold, which is priced in dollars.

At 10:36 GMT, XAU/USD is trading $2522.93, up $10.44 or +0.42%.

Gold Prices Near Record Levels

Spot gold climbed on Monday, trading just $7 below its record peak of $2,531.77 set last week. The dollar’s drop to its lowest level in over a year has made gold more affordable for international buyers, adding upward pressure on prices. Additionally, 10-year U.S. Treasury yields eased, further supporting gold’s appeal as a safe-haven asset.

Powell’s Comments Signal Imminent Rate Cuts

In his recent speech at the Jackson Hole Symposium, Powell strongly hinted at the likelihood of rate cuts, highlighting the Federal Reserve’s concern over the cooling U.S. labor market. Powell indicated that while inflation appears to be on a sustainable path back to the Fed’s 2% target, the central bank is wary of further softening in employment conditions. He noted that the Fed is prepared to adjust its policy accordingly, with market participants now fully pricing in a rate cut for September. According to the CME FedWatch tool, there is a 64% chance of a 25 basis point cut and a 36% chance of a 50 basis point cut.

Lower Interest Rates Boost Gold’s Appeal

A lower interest rate environment tends to increase the attractiveness of non-yielding assets like gold. As borrowing costs decrease, gold becomes a more appealing investment, especially when compared to interest-bearing assets. UBS analyst Giovanni Staunovo pointed out that the potential for rate cuts could significantly enhance demand for gold. Staunovo also noted that central banks are likely to continue purchasing gold, driven by geopolitical risks, economic uncertainties, and the fear of sanctions. These factors, combined with ongoing debt concerns, are expected to sustain strong demand for gold despite its elevated price levels.

Robust Demand from India and Central Banks

India, a major gold consumer, is expected to see strong demand during the upcoming festive season, thanks to a recent reduction in import duties, making gold more affordable for buyers. Meanwhile, central banks around the world continue to add to their gold reserves, driven by a mandate to secure specific amounts over time, which could further support prices.

Market Forecast

Given Powell’s dovish stance and the increasing likelihood of rate cuts, the outlook for gold remains bullish in the near term. A weaker dollar and lower Treasury yields should continue to support gold prices, with potential for new record highs if the Fed follows through with rate reductions. Traders should monitor upcoming U.S. economic data closely, as it will play a crucial role in the Fed’s decision-making process, potentially driving further gains in gold prices.

Technical Analysis

XAU/USD is edging toward the record high at $2531.77 on Monday. Taking out this level will reaffirm the uptrend, but we’re not expecting a breakout move until their are a lot of buy stops hidden over that price. The price action has been a little conservative lately with buyers coming in on the dips rather than the breakouts.

Support is a minor pivot at $2482.00 and a minor swing bottom at $2470.85. Taking out this bottom will shift momentum to the downside with $2442.48 and $2432.22 the next targets.