Gold price holds steady near record high, awaits Fed's Powell before the next leg up

• Gold price remains confined in a narrow trading band, though the downside remains cushioned.
• Bets for another 50 bps Fed rate cut in November undermine the USD and lend support to the metal.
• Geopolitical tensions further act as a tailwind ahead of speeches by influential FOMC members. 

Gold price (XAU/USD) edges higher during the Asian session on Thursday and remains well within striking distance of the all-time peak touched the previous day. Bets for another oversized interest rate cut by the US Federal Reserve (Fed) fail to assist the US Dollar (USD) to capitalize on the previous day's solid recovery from the vicinity of the YTD low and lend support to the non-yielding yellow metal. Apart from this, rising tensions in the Middle East and concerns over China's economic recovery, despite the latest stimulus plans, act as a tailwind for the safe-haven precious metal.

Any meaningful intraday appreciating move for the Gold price, however, seems elusive amid slightly overbought conditions on the daily chart and ahead of Fed Chair Jerome Powell's speech later today. Investors will look for fresh cues about the pace of interest rate cuts going forward, which, in turn, will drive the USD demand and the XAU/USD. Apart from this, the US macro data – the final Q2 GDP print, Weekly Initial Jobless Claims and Durable Goods Orders – and speeches by a slew of influential FOMC members should provide some meaningful impetus to the commodity. 

Daily Digest Market Movers: Gold price continues to draw support from Fed rate cut bets, geopolitical risks

• The US Dollar struggles to build on Wednesday's strong recovery gains amid dovish Federal Reserve expectations, which, in turn, continues to lend some support to the non-yielding Gold price. 
• Several Fed officials this week tried to push back against bets for a more aggressive easing, though the markets are pricing in a greater chance of a 50 basis points rate cut in November. 
• Hence, Fed Chair Jerome Powell's speech later this Thursday will be scrutinized closely for fresh cues about the future rate-cut path and to determine the near-term trajectory for the XAU/USD. 
• The US macro data – the final Q2 GDP print, the usual Weekly Initial Jobless Claims, Durable Goods Orders – and speeches by other influential FOMC members should also provide some impetus.
• Meanwhile, the latest optimism led by a new round of Chinese stimulus measures announced this week fades amid doubts over its impact and worries about a global economic downturn. 
• Moreover, investors remain concerned about the risk of a further escalation of geopolitical tensions and a broader conflict in the Middle East, offering support to the safe-haven precious metal.

Technical Outlook: Gold price bulls remain on the sidelines amid slightly overbought RSI on the daily chart

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is flashing overbought conditions and holding back bulls from placing fresh bets. That said, this week's breakout through a short-term ascending trend channel suggests that the path of least resistance for the Gold price remains to the upside. Hence, the subdued range-bound price action might still be categorized as a consolidation phase before the next leg up. 

In the meantime, dips towards the ascending channel resistance breakpoint, around the $2,625 region, could be seen as a buying opportunity and remain limited near the $2,600 mark. A convincing break below the latter might prompt some technical selling and drag the Gold price towards the $2,575 region en route to the $2,560 area and the $2,535-2,530 resistance-turned-support.

Interest rates FAQs

What are interest rates?

Interest rates are charged by financial institutions on loans to borrowers and are paid as interest to savers and depositors. They are influenced by base lending rates, which are set by central banks in response to changes in the economy. Central banks normally have a mandate to ensure price stability, which in most cases means targeting a core inflation rate of around 2%. If inflation falls below target the central bank may cut base lending rates, with a view to stimulating lending and boosting the economy. If inflation rises substantially above 2% it normally results in the central bank raising base lending rates in an attempt to lower inflation.

How do interest rates impact currencies?

Higher interest rates generally help strengthen a country’s currency as they make it a more attractive place for global investors to park their money.

How do interest rates influence the price of Gold?

Higher interest rates overall weigh on the price of Gold because they increase the opportunity cost of holding Gold instead of investing in an interest-bearing asset or placing cash in the bank. If interest rates are high that usually pushes up the price of the US Dollar (USD), and since Gold is priced in Dollars, this has the effect of lowering the price of Gold.

What is the Fed Funds rate?

The Fed funds rate is the overnight rate at which US banks lend to each other. It is the oft-quoted headline rate set by the Federal Reserve at its FOMC meetings. It is set as a range, for example 4.75%-5.00%, though the upper limit (in that case 5.00%) is the quoted figure. Market expectations for future Fed funds rate are tracked by the CME FedWatch tool, which shapes how many financial markets behave in anticipation of future Federal Reserve monetary policy decisions.

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