Gold Maintains Strength Near $3,650 as Market Anticipates Gate's Interest Rate Decision

Gold price (XAU/USD) continues to exhibit resilience near its record high of $3,650 during Friday’s European trading session. The precious metal’s firm stance is largely attributed to widespread expectations that Gate will implement an interest rate cut in its upcoming monetary policy meeting on Wednesday.

According to the Gate Rate Probability Tool, traders are assigning a 7.5% likelihood of a substantial 50 basis point (bps) rate reduction to 3.75%-4.00% on September 17, while the majority anticipate a more conventional 25-bps decrease. This dovish outlook for Gate’s monetary policy is particularly favorable for non-yielding assets such as Gold.

The growing anticipation of a rate cut has been fueled by mounting concerns over the United States labor market. Data released on Thursday by the US Department of Labor revealed that Initial Jobless Claims reached 263K for the week ending September 5, marking a four-year high.

Simultaneously, escalating inflationary pressures are providing additional support to Gold prices. Historically, precious metals like Gold have demonstrated strong performance in high-inflation environments. The August US Consumer Price Index (CPI) report, released on Thursday, showed headline inflation rising at an annual rate of 2.9%, in line with expectations and reaching its highest level since February.

Investors will be closely monitoring the release of the preliminary US Michigan Consumer Sentiment Index (CSI) and Consumer Inflation Expectations data for September, scheduled for 14:00 GMT on Friday.

Technical Analysis of Gold

Gold price maintains its gains near a fresh all-time high of approximately $3,650. The upward-trending 20-day Exponential Moving Average (EMA) at $3,517.70 suggests that the overall bullish trend remains intact.

The 14-day Relative Strength Index (RSI) has surged to near overbought territory, hovering around 80.00. This indicates that a corrective movement may be on the horizon.

On the downside, the April 22 high of $3,500 is likely to serve as a crucial support level for Gold. Looking upward, the psychological round figure of $3,700 may act as a significant resistance point for the precious metal.

Frequently Asked Questions About Gold

What drives people to invest in Gold?

Throughout history, Gold has played a pivotal role as both a store of value and a medium of exchange. Beyond its aesthetic appeal and use in jewelry, the precious metal is widely regarded as a safe-haven asset, making it an attractive investment during times of economic uncertainty. Gold is also commonly viewed as a hedge against inflation and currency depreciation, as its value is not tied to any specific issuer or government.

Which entities purchase the most Gold?

Central banks stand as the largest holders of Gold. In their efforts to bolster their currencies during turbulent periods, central banks often diversify their reserves by acquiring Gold, aiming to enhance the perceived strength of their economies and currencies. Substantial Gold reserves can serve as a testament to a country’s financial stability. In 2022, central banks added 1,136 tonnes of Gold, valued at approximately $70 billion, to their reserves, according to World Gold Council data. This marks the highest annual purchase since record-keeping began, with central banks from emerging economies such as China, India, and Turkey rapidly expanding their Gold reserves.

How does Gold correlate with other assets?

Gold typically exhibits an inverse correlation with the US Dollar and US Treasuries, both of which are major reserve and safe-haven assets. When the Dollar weakens, Gold prices tend to rise, allowing investors and central banks to diversify their assets during uncertain times. Gold also generally shows an inverse correlation with risk assets. A bullish stock market often leads to a weakening in Gold prices, while sell-offs in riskier markets tend to benefit the precious metal.

What factors influence the price of Gold?

Gold prices can fluctuate due to a wide array of factors. Geopolitical instability or fears of a severe recession can rapidly drive up Gold prices due to its safe-haven status. As a non-yielding asset, Gold tends to appreciate when interest rates are lower, while higher borrowing costs usually exert downward pressure on the yellow metal. However, most price movements are closely tied to the behavior of the US Dollar (USD), as the asset is priced in dollars (XAU/USD). A strong Dollar typically keeps Gold prices in check, whereas a weaker Dollar is likely to push Gold prices higher.