Gold hits new high after fall in consumer confidence

• Gold rallies to a new record high after US Consumer Confidence data falls well below expectations. 
• The data reinforces bets the Federal Reserve will have to take more drastic easing measures – a positive for Gold. 
• XAU/USD is overbought but rallying on all timeframes and, given “the trend is your friend,” it is likely to continue.  

Gold (XAU/USD) rallies to another record high of $2.670 per troy ounce on Wednesday after an unexpected drop in US Consumer Confidence data on Tuesday increased bets of more aggressive easing and deeper interest rate cuts from the Federal Reserve (Fed). 

Lower interest rates are positive for Gold, as they reduce the opportunity cost of holding the non-interest-paying asset, making it more attractive to investors.

The biggest stimulus push since the Covid pandemic from the People’s Bank of China announced on Tuesday, including aggressive cuts to borrowing costs amongst a package of measures to inflate the flagging economy, also supported Gold’s rise.

The escalation of tensions in the Middle East after more bombing by Israel of Hezbollah targets in Lebanon is further pushing safe-haven flows into the yellow metal. 

Gold rallies after US consumers lose confidence 

Gold reaches a new peak after more bad news about the US economy suggests the Fed may need to continue drastically cutting interest rates.

The Conference Board Consumer Confidence Index fell to 98.7 in September from an upwardly revised 105.6 in August. The result was well below the 103.9 consensus estimate. 

Following the release of the data, the market-based probabilities of the Fed making another double dose 50 basis points (bps), or 0.50%, rate cut increased to around 60% from 50% before, according to the CME FedWatch tool. 

Commentary from Federal Reserve Governor Michelle Bowman (voter - hawkish) on Tuesday may have taken some of the edges off the bad news however, after she said, "with no clear signs of material weakening or fragility, in my view, beginning the rate-cutting cycle with a 1/4 percentage point move would have better reinforced the strength in economic conditions." 

Bowman’s comments scored a 7.0 on FXStreet’s FedTracker, which gauges the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10, using a custom AI model.

Technical Analysis: Gold extends strong uptrend

Gold breaks to new highs on Wednesday, and given the principle in technical analysis that “the trend is your friend,” the odds favor even more upside for the yellow metal, in line with the dominant short, medium, and long-term uptrends. 

XAU/USD Daily Chart

The next targets to the upside are the round numbers $2,700 and then $2,750. Confirmation would come from a break above the $2,670 peak. 

Gold has entered overbought levels, according to the Relative Strength Index (RSI) in the daily chart. This advises traders not to add to their long positions. If Gold exits overbought, it will be a sign for them to close long positions and sell shorts, as it would suggest a deeper correction is in the process of unfolding.   

If a correction evolves, firm support lies at $2,600 (September 18 high), $2,550 and $2,544 (0.382 Fibonacci retracement of the September rally).