- Gold breaks to new record highs on Friday as central banks worldwide are expected to follow the Fed’s example.
- The precious metal shot to a new high after the Fed’s decision to slash borrowing costs by 0.50% on Wednesday.
- As traders say, the “trend is your friend,” and technically, Gold is in a strong uptrend in all time frames.
Gold (XAU/USD) breaks to a new record high in the $2,610s on Friday on heightened expectations that global central banks will follow the Federal Reserve (Fed) in easing policy and slashing interest rates. Lower interest rates are positive for Gold, as they reduce the opportunity cost of holding the non-interest-paying asset, making it more attractive to investors.
Following Wednesday’s Fed decision, the South African Reserve Bank (SARB) cut its key interest rate by 25 basis points (bps) on Thursday – the first cut since the Covid pandemic in 2020. The Central Bank of the Philippines cut interest rates by 250 bps to 7.0% at its meeting on Friday. The Reserve Bank of India (RBI) is now also widely expected to slash interest rates in sympathy with the Fed when it next meets.
Although the People’s Bank of China (PboC) kept its key lending rates unchanged at the September fixing on Friday, the one and five-year loan prime rates lie at record lows of 3.35% and 3.85%, respectively, after the bank made a surprise cut in July. The Bank of Japan (BoJ), meanwhile, left rates unchanged at its meeting on Friday, despite some speculation of a rate hike in the offing.
Gold breaks above previous record highs
Gold smashes above the previous record highs set on Wednesday of $2,600 following the Fed’s decision. At this meeting, the US central bank decided to cut interest rates by a double-dose of 50 pbs (0.50%).
The upside for the yellow metal was capped, however, by the Fed’s broadly positive outlook for US growth, which the central bank saw remaining stable at about 2.0% per year until the end of 2027. This suggested a “soft landing” profile for the economy, which is broadly positive for sentiment. However, this was probably negative for the safe-haven Gold. Thus, the precious metal quickly fell after peaking.
At the same time, increased geopolitical risk aversion might be generating supportive safe-haven flows. Israel’s use of exploding pagers and walkie-talkies to eliminate and injure Hezbollah agents in Lebanon has increased the risk of an escalation in the Middle East conflict, potentially supporting the precious metal.
Technical Analysis: Gold makes new high as uptrend extends
Gold has broken through to new highs on Friday, above the previous record high of $2,600 set after the Fed meeting on Wednesday.
The technical analysis dictum says that “the trend is your friend,” which means the odds favor more upside for the yellow metal in line with the dominant long, medium, and short-term uptrends.
XAU/USD Daily Chart
The next targets to the upside are the round numbers: $2,650 first and then $2,700.
Gold is still not quite overbought, according to the Relative Strength Index (RSI) in the daily chart above, which also leaves room for more upside.
In the event that Gold’s RSI enters the overbought zone on a closing basis, however, it will advise traders not to add to their long positions.
If it enters and then exits overbought, it will be a sign to close longs and sell, as it would suggest a deeper correction is in the process of unfolding.
If a correction evolves, firm supports lies at $2,550, $2,544 (0.382 Fibonacci retracement of the September rally), and $2,530 (former range high).
Interest rates FAQs
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.
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.
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.
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.
Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers. The author will not be held responsible for information that is found at the end of links posted on this page.
If not otherwise explicitly mentioned in the body of the article, at the time of writing, the author has no position in any stock mentioned in this article and no business relationship with any company mentioned. The author has not received compensation for writing this article, other than from FXStreet.
FXStreet and the author do not provide personalized recommendations. The author makes no representations as to the accuracy, completeness, or suitability of this information. FXStreet and the author will not be liable for any errors, omissions or any losses, injuries or damages arising from this information and its display or use. Errors and omissions excepted.
The author and FXStreet are not registered investment advisors and nothing in this article is intended to be investment advice.
Recommended content
Editors’ Picks
EUR/USD holds above 1.0550 on renewed US Dollar weakness
EUR/USD stabilizes above 1.0550 on Monday. A positive shift in risk sentiment curbs the safe-haven demand for the US Dollar, offering some comfort to the pair. Later in the week, US inflation data and ECB policy announcements could drive EUR/USD's action.
GBP/USD rises above 1.2750 as risk appetite returns
GBP/USD picks up fresh bids and clings to modest daily gains above 1.2750. Markets cheer improving risk sentiment as traders shrug off geopolitical risks and reposition ahead of the US inflation test, making it difficult for the US Dollar to gather strength.
Gold climbs above $2,650 on Chinese stimulus hopes
Gold gathers bullish momentum and trades above $2,650 on Monday. News of China planning to inject further stimulus into the economy boosts XAU/USD as investors gear up for this week's key data releases and central bank meetings.
Five Fundamentals for the week: Currencies set to rock on diverging central bank decisions Premium
The only way is down – but not in the land down under. Central banks in the Eurozone, Canada and Switzerland are on course to cut rates this week, ahead of a similar move in the US next week. Inflation data in the world's largest economy stands out as the main macro data release.
Bitcoin Price Forecast: Amazon shareholders advocate for BTC adoption amid Microsoft’s investment vote
Bitcoin edges down 2.5%, trading below $98,500 on Monday, after rallying 4% and reaching a new all-time high of $104,088 last week. As BTC reached its $100K milestone, big corporates showed interest in the largest digital asset by market capitalization.
Best Forex Brokers with Low Spreads
VERIFIED Low spreads are crucial for reducing trading costs. Explore top Forex brokers offering competitive spreads and high leverage. Compare options for EUR/USD, GBP/USD, USD/JPY, and Gold.