Gold (XAU) Price Forecast: Will Rate Cut Hopes Drive a Gold Rally to $2500?

Gold Prices Seek Support Amid Mixed Market Signals

Gold prices are slightly better on Wednesday as traders attempt to establish new support at a key pivot of $2380.54. The major support remains the 50-day moving average at $2367.89. Investors are closely watching the Federal Reserve, anticipating a potential rate cut in September, which has stirred speculation about gold’s trajectory towards the record high of $2483.74 and possibly reaching the psychological $2500 level.

At 10:20 GMT, XAU/USD is trading $2394.88, up $4.745 or +0.20%.

Rate Cut Speculations and Gold’s Performance

The prospect of a September rate cut by the Federal Reserve is seen as a certainty, with traders adjusting their expectations following a soft jobs report last week. According to the CME FedWatch Tool, a 100% chance of a rate cut in September is anticipated, with nearly 105 basis points of cuts expected by year-end. This outlook for looser monetary policy provides a supportive environment for gold, a non-yield-bearing asset, bolstered further by strong central bank buying.

Safe-Haven Demand and Market Rebound

Gold prices inched up on Wednesday, driven by safe-haven demand amid rising bets on the Fed reducing interest rates. This increase followed a dip in prices over the previous four sessions, with U.S. gold futures also gaining. Earlier in the week, gold prices fell by as much as 3% amid a global sell-off fueled by U.S. recession fears. Despite these fluctuations, some distressed sellers from the weekend/Monday may be looking to re-establish their positions as gold continues to offer liquidity ahead of potential margin calls.

Dollar and Treasury Yields Influence

The dollar index moved away from a seven-month low touched on Monday, and the 10-year U.S. Treasury yield also rose, reflecting sentiments that fears of a U.S. economic downturn were overdone. Higher Treasury yields, which saw the benchmark 10-year yield climb over 4 basis points to 3.9354%, and the 2-year note rise to 4.0282%, may cap gains in gold. Nonetheless, bullion remains a preferred hedge against geopolitical and economic uncertainties, thriving in low-interest-rate environments.

Market Volatility and Global Trends

Global stock markets experienced a significant rebound on Wednesday, recovering from dramatic sell-offs on Friday and Monday. This recovery was evident in the gains seen in Asia-Pacific and European markets, along with U.S. futures. The U.S. Treasury Department’s auction of $42 billion in 10-year government notes and the dollar’s steady performance against other currencies also played roles in shaping market movements.

Market Forecast: Bullish Outlook for Gold

Given the current market conditions and the high probability of rate cuts by the Federal Reserve, gold prices are expected to maintain a bullish trend. The supportive environment created by expectations of looser monetary policy, combined with safe-haven demand and strong central bank buying, suggests that gold may continue its upward momentum, potentially testing the $2500 level in the near term. Traders should remain vigilant for any new catalysts that could further drive prices higher.

Technical Analysis

The first support is a 50% level at $2380.54. The major support is the 50-day moving average at $2367.87. A break below this level could lead to a quick test of the main bottom at $2353.19. This is a potential trigger point for an acceleration to the downside. This could lead to a test of the triple-bottom at $2293.69 to $2277.34. If this zone fails then we’re likely to see a plunge into $2234.02.

Establishing support at $2380.50 will signal the presence of buyers. This could lead to a test of the pivot at $2418.47. Traders have to overcome this level in order to set up a test of the double-top at $2477.73 and $2483.74.

Other thoughts:  Taking out $2353.19 will confirm the double-top with $2222.64 the downside target.