Gold remains on track for gains near all-time highs, renewed USD buying caps gains

• Gold prices continue their upward trend and hit a new record high on Monday.
• Major central banks remain in rate cutting mode and continue to benefit from XAU/USD.
• Tensions in the Middle East and political uncertainty in the USA are also supporting the precious metal.

Gold prices (XAU/USD) are rising for the fifth day in a row – which also marks the seventh day of positive movement in the previous eight days – and hit a new record high in the $2,732-$2,733 range on the first day of a new week . The easing monetary policy environment and bets on further interest rate cuts by major central banks continue to drive inflows into the low-yielding yellow metal. Additionally, ongoing geopolitical risks due to ongoing conflicts in the Middle East and political uncertainty in the US provide additional support for the safe haven.

Meanwhile, growing market belief that the Federal Reserve (Fed) will proceed with moderate interest rate cuts is helping the US dollar (USD) attract some downside buying and stall its modest retreat from its highest level since early August reached last week. This, along with increased US Treasury yields, has a negative impact on gold prices. Traders may also refrain from placing new bullish bets around XAU/USD given the slightly overbought conditions on the daily chart. However, the fundamental conditions support the prospects of a continuation of the recently established upward trend.

Daily Digest Market Movers: Gold prices remain well supported by interest rate cut expectations

• A combination of supportive factors is helping gold prices continue their recent established uptrend and reach a new all-time high during the Asian session on Monday.
• Tensions and conflicts in the Middle East show no sign of abating despite the assassination of Hamas leader Yahya Sinwar, as Israel prepares to respond to Iran’s attack in early October.
• Israeli Prime Minister Benjamin Netanyahu said the attack on his private residence by Iran’s Lebanese proxy Hezbollah would not deter him from continuing the war.
• The Israeli army launched a series of airstrikes across Lebanon and also stepped up attacks across the Gaza Strip, raising the risk of a full-scale regional war in the Middle East.
• Recent polls suggest a close contest between Donald Trump and Vice President Kamala Harris, adding uncertainty and benefiting the safe-haven XAU/USD.
• The European Central Bank decided last week to cut interest rates for the third time this year – the first consecutive rate cuts in 13 years – and plans further cuts.
• The Federal Reserve is also expected to further cut borrowing costs, while weak inflation data from the UK bolstered speculation of more aggressive monetary easing by the Bank of England.
• Investors have fully priced in the possibility of another massive Fed rate cut in November as incoming macro data continues to point to a robust US economy.
• Atlanta Fed President Raphael Bostic said he is in no rush to cut rates and is considering cutting the benchmark rate to somewhere between 3% and 3.5% by the end of next year.
• The yield on the 10-year US Treasury bond is above 4% and acts as a tailwind for the USD, although it hardly hinders the positive development of the commodity.
• Investors continue to cheer the People’s Bank of China’s launch on Friday of two financing programs designed to support capital market development.

Technical Outlook: Gold prices need to consolidate recent strong gains before the next advance begins

From a technical perspective, last week’s sustained strength and close above $2,700 could be seen as a new trigger for bullish traders. However, the Relative Strength Index (RSI) on the daily chart has crossed the 70 mark, indicating a slightly overbought condition. This in turn makes it advisable to wait for a short-term consolidation or slight decline before positioning for a continuation of the recently established uptrend.

Meanwhile, the $2,700 round level now appears to hedge the immediate downtrend, below which gold prices could accelerate the corrective decline towards the $2,662-$2,660 zone. The next relevant support is near the $2,647-$2,646 area. A convincing break below the latter could lead to technical selling and expose the $2,600 level with some interim support near the $2,630 level.