Gold Prices Tramp the Top of the Hill

Gold prices are up by 0.2% this week, reaching $2,516 per troy ounce. The market is hovering near its all-time high, just 0.6% below the peak of $2,531 per ounce set on August 20. This upward movement has been fueled by investor anticipation of dovish signals from the Federal Reserve (Fed). Their expectations were confirmed with the release of the FOMC Minutes, which indicated that policymakers are prepared to cut interest rates. Fed Chair Jerome Powell further reinforced this outlook, stating that "the time has come" to begin lowering rates in September.

Historically, gold prices have rallied when the Fed initiates a monetary easing cycle, and this trend seems to be repeating. Large investors are already capitalizing on this by increasing their positions. The SPDR Gold Trust (GLD) has seen net inflows for eight consecutive weeks, with a significant surge of $654.3 million during the third week of August and an additional $91.2 million last week.

Over the past eight weeks, investors have enjoyed returns of around 4-5%, which typically might trigger profit-taking. However, this doesn't appear to be happening yet. Although the U.S. Dollar is strengthening, which could lead to a correction, many investors remain bullish on gold.

Currently, prices are above the critical resistance level of $2,490-2,510 per ounce, which might suggest that a breakthrough has occurred, setting the stage for a steeper rally. However, this could be deceptive, as such overbought conditions often lead to significant corrections. Technically, a correction could materialize as soon as September.

This week lacks major news that could sway gold prices significantly, but next week could be pivotal. On September 6, the U.S. labor market report for August will be released, potentially triggering a correction. Large investors might even signal this movement in advance.