GOLD SETS A NEW HIGH IN WAKE OF FED RATES CUTS

In wake of FED rates cuts, the yellow metal surged by about +0.98% to set an all-time high of $2600 per ounce on Wednesday the 18th of September 2024 before catching its breath for the next move. On the other hand, the USD (DXY) broke August Low of 100.514 to test 100.215 before catching breath for the next move.

            Recall that the yellow metal on Thursday 12th September 2024, broke out of the range where it consolidated for about four weeks where $2531 served as resistance but as markets geared up for yesterday’s rate cut, gold broke out and that momentum set a preceding high around $2589 on Monday the 16th of September. Afterwards, the yellow metal retraced to the 38.2 level of the Fib. at $2560 serving as support, before spiking to its all-time high of $2600 on Wednesday the 18th of September 2024 during the FED’s September policy meeting where the Chair announced a cut in its rate by half a point(50bps). Some technical analysts predict the yellow metal would likely reach $3000 per ounce later this year or before the end of 2025 first quarter.

            During his speech, the FED Chair maintained that the decision to cut rate by 50bps reflects the committee’s growing confidence in achieving the 2% inflation target over the long run, while keeping unemployment rate in check. The committee’s attention is now tilted towards the labor market. Although, Powell emphasized that the labor market is not the cause of inflationary pressure. He further reiterated that this decision is not politically driven as election is few weeks away but reflects the FED's strategic approach to maintaining economic stability and achieving its objectives. He said, “today the FOMC decided to reduce the degree of policy restraint by lowering our policy interest rate by a half percent, the decision reflects our growing confidence that with an appropriate recalibration, of our policy stance, strength in the labor market can be maintained in the context of moderate growth and inflation moving sustainably down to 2%”. He also maintained that the committee has also decided to reduce its security holdings.

            This rate cut is coming in four years since after the pandemic and have been much anticipated by markets participants.

TECHNICAL VIEW

The yellow metal is currently at $2581 after it found support on the 38.2 level of the Fib. around $2550 phycological barrier and above the 50 EMA. If it breaks the current high of $2600 analyst envisage that the $2650 phycological level would likely serve as resistance. Conversely, if price tank then potential support lies around $2550 and $2530 break out of these levels aren’t ruled out as per analyst point of view.

Fig.1 Gold Spot, trading view 4H