Gold attempts to establish new record highs amid rising odds of Fed rate cuts

• Gold price appreciates due to the high likelihood of a rate-cut decision by the Fed in September.
• Fed Governor Christopher Waller stated that the central bank is ‘getting closer’ to an interest rate cut.
• Gold may limit its upside as US Treasury yields rebound.

Gold price (XAU/USD) edges higher to near $2,470 per troy ounce on Thursday, remaining close to record highs amid growing optimism that the Federal Reserve (Fed) will reduce rates in September. Lower interest rates make non-yielding assets like Gold more attractive to investors.

Federal Reserve officials have expressed increasing confidence that the pace of price increases is now more consistently aligning with policymakers' goals. On Wednesday, Fed Governor Christopher Waller said that the US central bank is ‘getting closer’ to an interest rate cut. Meanwhile, Richmond Fed President Thomas Barkin stated that easing in inflation had begun to broaden and he would like to see it continue,” per Reuters.

According to CME Group’s FedWatch Tool, markets now indicate a 93.5% probability of a 25-basis point rate cut at the September Fed meeting, up from 69.7% a week earlier.

The US Dollar Index (DXY), which measures the value of the US Dollar (USD) against the six other major currencies, rebounds due to improved US Treasury yields. The DXY trades around 103.80, with yields on 2-year and 10-year US Treasury bonds standing at 4.45% and 4.17%, respectively, at the time of writing. This scenario may limit the upside of the Gold prices.

Daily Digest Market Movers: Gold edges higher due to dovish sentiment surrounding the Fed

• The New York Times reported on Wednesday that former President Donald Trump, in a meeting with House Republicans last month, expressed support for tax reductions, lower interest rates, and increased tariffs. These measures could potentially be inflationary for the economy and weaken the Greenback, which may, in turn, boost the demand for dollar-denominated Gold.
• During an interview with Bloomberg News on Tuesday, Donald Trump cautioned Fed Chair Jerome Powell against cutting US interest rates before November’s presidential vote. However, Trump also indicated that if re-elected, he would allow Powell to complete his term if he continued to "do the right thing" at the Federal Reserve.
• On Tuesday, Federal Reserve (Fed) Board of Governors member Dr. Adriana Kugler acknowledged that inflationary pressures have eased but emphasized that the Fed still needs additional data to justify a rate cut. Kugler indicated that if upcoming data does not confirm that inflation is moving toward the 2% target, it may be appropriate to maintain current rates for a while longer, per Reuters.
• The US Retail Sales for June stayed mostly in line with expectations. Retail Sales in the United States held steady at $704.3 billion in June, after a 0.3% gain (revised from 0.1%) in May, and are in line with market expectations.
• Fed Chair Jerome Powell mentioned on Monday that the three US inflation readings of this year "add somewhat to confidence" that inflation is on course to meet the Fed’s target sustainably, suggesting that a shift to interest rate cuts may not be far off.

Technical Analysis: XAU/USD aspires toward $2,500

Gold price trades around $2,470 on Thursday. The daily chart analysis shows that the XAU/USD pair consolidates within an ascending channel, indicating a bullish bias. However, the 14-day Relative Strength Index (RSI) is positioned slightly below the 70 level, suggesting a confirmation of a bullish trend but also indicating an overbought situation of the asset. A correction can be expected in the short term.

The XAU/USD pair tests the upper boundary of the ascending channel around the $2,470 level. A breakthrough above this level could lead the pair to test the psychological level of $2,500.

On the downside, the nine-day Exponential Moving Average (EMA) at the $2,424 level could act as immediate support, followed by the lower boundary of the ascending channel at the $2,410 level. A break below the latter could exert downward pressure on the XAU/USD pair to navigate the area around the throwback support of the $2,290 level.

XAU/USD: Daily Chart