Gold Reaches New Heights as Markets Anticipate Fed Rate Cut

Gold continues its remarkable ascent, touching a fresh all-time high near $3,660 on Tuesday, with the XAU/USD pair trading around $3,650, marking a 0.50% increase for the day. This surge represents the third consecutive day of gains, pushing the precious metal into uncharted territory.

The rally has been fueled by a combination of factors, including a weakening US Dollar, which has made gold more appealing to international buyers. Recent disappointing US labor market data has strengthened expectations that the Federal Reserve will reduce interest rates at its September meeting, further boosting demand for the yellow metal.

Steady acquisitions by central banks have provided additional support, as major reserve holders diversify their portfolios away from the US Dollar. Geopolitical tensions and concerns over global trade frictions have also contributed to increased safe-haven flows into gold. Meanwhile, market anxiety has been heightened by questions surrounding the Fed's independence amidst growing political pressure.

Investors are eagerly awaiting the US Nonfarm Payrolls benchmark revision, scheduled for release at 14:00 GMT. Early projections suggest a significant downward adjustment, potentially eliminating up to 800,000 jobs. A substantial revision could reinforce the narrative of a rapidly cooling US economy, further solidifying the case for monetary easing and potentially sustaining gold's bullish momentum.

Market Dynamics: US Economic Indicators Take Center Stage

The US Dollar Index (DXY) has retreated to its lowest point in seven weeks, stabilizing near 97.40. This weakness stems from a dovish Fed outlook, with markets anticipating a shift in focus towards maximum employment within the central bank's dual mandate.

US Treasury yields have found some stability after a four-day decline that pushed rates to multi-month lows. The benchmark 10-year yield is holding around 4.06%, while the 30-year and 2-year yields are at 4.72% and 3.50%, respectively. This recent yield compression underscores growing concerns about US economic momentum.

Market expectations now fully price in a 25-basis-point rate cut at the September Fed meeting, with the probability of a larger 50 bps reduction rising to approximately 11%, according to the CME FedWatch tool. Futures markets are pricing in nearly 75 bps of cuts by year-end and about 140 bps of easing over the next twelve months, based on a report from BHH Marketview.

In international news, France's Prime Minister lost a confidence motion in parliament, while the US President signaled readiness for additional sanctions against Russia over the Ukraine conflict. The EU is reportedly preparing its 19th sanctions package in coordination with Washington.

Attention now turns to upcoming US economic releases, particularly the Producer Price Index on Wednesday and the Consumer Price Index on Thursday. These reports will be crucial in shaping the Fed's monetary policy trajectory. Market participants are seeking signs of disinflation, with forecasts pointing to modest monthly gains. Softer readings could reinforce expectations of imminent rate cuts, while any upside surprises might temper dovish sentiment and potentially impact gold prices.

Technical Analysis: XAU/USD Consolidates Near Record Highs

Gold is currently consolidating just below its recent peak of $3,660, with intraday trading confined to a narrow range above $3,640 support. The upward-sloping 50-hour and 100-hour Simple Moving Averages at $3,613 and $3,581, respectively, underscore the prevailing bullish trend.

However, momentum indicators are showing early signs of exhaustion. The Relative Strength Index (RSI) on the 1-hour chart, currently at 67, is approaching overbought levels and has formed a bearish divergence. The Moving Average Convergence Divergence (MACD) indicator remains positive but its histogram suggests waning momentum, hinting at potential consolidation before the next upward move.

A sustained break above $3,660 could open the door to further gains towards the $3,680–$3,700 range. Immediate support lies at $3,640, followed by the 50-hour SMA at $3,613 and the psychologically important $3,600 level. Below these, the 100-hour SMA at $3,581 and the $3,575 mark serve as deeper support levels.