Article by: ETO Markets

Gold prices (XAU/USD) continued to move higher this week and hit a record high, largely driven by expectations of an interest rate cut by the Federal Reserve. With inflationary pressures easing in the US, expectations are rising that the Federal Reserve will cut interest rates by a hefty 50 basis points later this month. The market is currently pricing in a more than 50% chance of a rate cut, according to CME Group. That has caused the dollar to weaken and 10-year Treasury yields to hover near their lows for the year, making non-yielding gold more attractive. In addition, uncertainty ahead of the US election and ongoing geopolitical risks around the world, such as the Russia-Ukraine war and Middle East tensions, further boosted risk aversion and supported gold demand. Also, the positive sentiment in global equity markets is posing some headwinds for gold, while investors remain cautious ahead of this week's central bank meetings, awaiting monetary policy decisions from the Federal Open Market Committee (FOMC), the Bank of England and the Bank of Japan.

From a technical point of view, the gold price has formed a clear upward channel, and the rally since June shows that the bulls are still dominant. However, the Relative Strength Index (RSI) on the daily chart is about to enter overbought territory, which means bullish traders should remain cautious. Currently, the price of gold is facing strong resistance at the upper limit of the $… channel, and if it can decisively break this level, gold may usher in new room for upside.

On the downside, the $…-… area provides near-term support with strong buying near the psychological $… level. A break below $… could see gold fall further toward $…, with support near the 50-day Simple Moving Average (SMA) also in focus.