Gold price flat lines below all-time peak, looks to US PCE Price Index for fresh impetus

• Gold price climbed to a fresh all-time peak on Thursday amid dovish Fed expectations.
• A modest USD uptick caps gains amid the risk-on mood and overbought conditions. 
• Traders now look forward to the US PCE Price Index before placing directional bets. 

Gold price (XAU/USD) oscillates in a narrow trading band during the Asian session on Friday and remains within the striking distance of the all-time peak touched the previous day. Traders opt to move to the sidelines and wait for the release of the crucial US Personal Consumption Expenditure (PCE) Price Index before placing fresh directional bets. Apart from this, a modest US Dollar (USD) uptick and the prevalent risk-on environment act as a headwind for the safe-haven precious metal. 

The downside for the Gold price, however, remains cushioned amid rising bets for another oversized interest rate cut by the Federal Reserve (Fed) in November. This keeps the USD confined in a familiar range held over the past two weeks or so and closer to the YTD low touched last week. Furthermore, persistent geopolitical risks stemming from the ongoing conflicts in the Middle East might continue to lend some support to the non-yielding yellow metal and limit any meaningful corrective slide. 

Daily Digest Market Movers: Gold price lacks firm intraday direction amid mixed fundamental cues

• Federal Reserve Governor Michelle Bowman again defended her decision to vote against the oversized rate cut in September and said that the upside risk to inflation is still prominent.
• Earlier this week, Atlanta Fed President Raphael Bostic warned that the central bank needn't go on a mad dash to lower rates, while other Fed officials left the door open for large rate cuts. 
• Fed Governor Lisa Cook said on Thursday that she endorsed the 50 basis points rate cut last week as upside risks to inflation have diminished and increasing downside risks to employment.
• According to the CME Group's FedWatch Tool, market participants see over a 50% chance that the Fed will lower borrowing costs by 50 basis points at the November policy meeting. 
• Data released by the Bureau of Economic Analysis (BEA) on Thursday showed that the US economy grew at a 3% annual rate in the second quarter, matching the original estimates.
• Separately, the US Census Bureau reported that new orders for manufactured durable goods stagnated in August, while orders excluding transportation items rose 0.5% last month. 
• Adding to this, the US Labor Department said that initial claims for state unemployment benefits dropped to 218,000 for the week ended September 21 – marking the lowest since mid-May.
• The data did provide some intraday respite to the US Dollar bulls, though the initial market reaction turned out to be short-lived in the wake of dovish Fed expectations. 
• Apart from this, the risk of a further escalation of geopolitical tensions in the Middle East and a broader regional conflict lifts the safe-haven Gold price to a fresh record high. 
• Meanwhile, interest rate cut is expected to boost global economic activity, which, along with stimulus measures from China, fuels the risk-on rally and caps the XAU/USD.
• The People's Bank of China (PBOC) cut the seven-day repo rate to 1.5% from 1.7% and lowered the amount of the Reserve Requirement Ratio (RRR) by 50 bps on Friday.
• Friday's release of the US Personal Consumption Expenditure Price Index might provide some impetus to the metal, which remains on track to register a third straight week of gains. 

Technical Outlook: Gold price bulls remain on the sidelines amid overbought RSI on the daily chart

From a technical perspective, the Relative Strength Index (RSI) on the daily chart has been flashing overbought conditions and holding back bulls from placing fresh bets around the XAU/USD. That said, the recent breakout through a short-term ascending trend channel suggests that the path of least resistance for the Gold price is to the upside. Bulls, however, need to wait for some near-term consolidation or a modest pullback before positioning for an extension of the recent well-established uptrend. 

Meanwhile, any meaningful dip could be seen as a buying opportunity near the channel resistance breakpoint, around the $2,625 region. This, in turn, should help limit the downside for the commodity near the $2,600 mark. The latter should act as a key pivotal point, which if broken decisively should pave the way for some meaningful downside in the near term.

Interest rates FAQs

What are interest rates?

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.

How do interest rates impact currencies?

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.

How do interest rates influence the price of Gold?

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.

What is the Fed Funds rate?

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.

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