Weekly Review: Gold surges $80 to hit a record high, facing the Fed's decision next week!
This week, the gold market experienced significant volatility as investors eagerly awaited the upcoming Federal Reserve policy meeting and its implications for future monetary policy. The sharp rise in gold prices was mainly driven by market expectations of a Fed rate cut, safe-haven demand, and large-scale purchases by central banks. Gold prices rose by over $80 this week, marking its strongest weekly performance since 2020.
Time:
2024-09-14 14:04
This week, the gold market experienced significant volatility, as the Federal Reserve is about to hold a policy meeting, investors are full of anticipation for the future direction of monetary policy. On Friday (September 13), the gold price broke through a historical high, spot gold prices once reached 2586.09 USD /oz, closing at 2578.36 USD/oz. The rapid rise in gold prices is mainly due to market expectations of a Fed rate cut, safe-haven demand, and large-scale purchases by central banks, which have driven up gold prices. Gold rose by more than 80 USD this week, its strongest weekly performance since 2020.
Easing Expectations and Safe-Haven Demand Resonate
This week, as global central banks generally eased monetary policy, especially the European Central Bank cut interest rates by 25 basis points on Thursday, further strengthening expectations of a Fed rate cut. This loose monetary policy backdrop has fueled safe-haven demand for gold, with the market widely expecting the Fed to announce a rate cut at its September 18 policy meeting. The CME Group's FedWatch tool shows that market expectations of a 50-basis-point Fed rate cut have risen sharply, from 20% previously to over 45%. Well-known institutional analysis points out that lower interest rates will provide strong support for non-interest-bearing assets such as gold, especially against the backdrop of easing inflationary pressure and slowing economic growth.
In addition, geopolitical risks remain a major driver of the gold market. The ongoing Russia-Ukraine conflict and tensions in the Middle East have prompted investors to treat gold as a safe-haven asset. This week, Bob Haberkorn, senior market strategist at RJO Futures, pointed out that the United States’ latest weak labor market data and a slight rise in inflation have further fueled market concerns about a future economic recession. Haberkorn believes that against the backdrop of increased economic uncertainty, gold's position as a wealth preservation tool will be further consolidated.
Gold Prices Hit Record High, Bullish Trend Unchanged
From a technical perspective, gold prices have continuously broken through multiple key resistance levels this week, especially after reaching a record high of 2586.09 USD/oz on Friday, showing a strong upward trend. Eren Sengezer, an analyst at FXStreet, pointed out in his latest report that gold prices’ upward momentum this week was mainly driven by market expectations of a 50-basis-point Fed rate cut. As the Fed releases its interest rate decision next week, gold prices may rise further.
From the daily chart, the relative strength index (RSI) of gold prices is still below 70, indicating that gold has not reached overbought levels in the short term and still has room to rise. The next major resistance level may appear at the 2600 USD/oz integer level, and the further target points to the upper limit of the upward channel at 2660 USD/oz. If market sentiment becomes more conservative, gold prices are expected to hit new highs.
In terms of downside risks, the first key support level for gold prices is at 2530 USD/oz. If this level is broken, it may fall to the 2500 USD/oz integer level and the 50-day moving average of 2460 USD/oz.
Federal Reserve Policy Becomes Market Focus
The volatility of the gold market is closely related to the Federal Reserve's monetary policy path. The market's growing expectation that the Fed will cut interest rates at next week's meeting has become an important driver of gold price increases this week. Daniel Ghali, senior market strategist at TD Securities, said that the main reason for gold prices rising to record highs is the widespread market expectation that the Fed will cut interest rates by a significant 50 basis points. Ghali pointed out that lower interest rates will weaken the dollar's appeal, thereby driving up the price of non-interest-bearing assets such as gold.
Meanwhile, data from the CME Group shows that the total open interest of Comex gold futures has increased significantly, indicating that new long positions are being established in the market. This means that investors are optimistic about further increases in gold prices in the future.
John Reade, chief market strategist at the World Gold Council, pointed out on social media that holdings of gold ETFs have increased for three consecutive months recently, showing that interest in gold among Western investors is recovering. Driven by this, gold prices are expected to continue to rise, and some analysts even believe that gold prices will challenge the 3000 USD/oz milestone in the next few years. Aakash Doshi, head of North American commodities at Citigroup, said that driven by US interest rate cuts, ETF demand, and over-the-counter physical demand, gold prices are expected to reach 3000 USD/oz in 2025, and may rise to 2600 USD/oz before the end of 2024.
Outlook: Future Gold Price Trends Closely Related to Policy Path
As the September 18 Federal Reserve meeting approaches, the gold market will face more volatility. The market generally expects the Fed to cut interest rates by at least 25 basis points, and the possibility of a 50-basis-point rate cut has also increased significantly. Peter Grant, vice president of Zaner Metals, said that if subsequent data show increased risks to economic growth and continued weakness in the labor market, the Fed may cut interest rates by another 50 basis points by the end of the year, which will bring more upward momentum to gold prices.
In addition, the pace of interest rate cuts by major central banks around the world, especially the European Central Bank's loose monetary policy, has also provided support for the gold market. Joseph Cavatoni of the World Gold Council pointed out that the upcoming US presidential election may exacerbate market uncertainty, and gold will continue to serve as a tool to hedge immediate risks. Therefore, the trend of gold prices in the coming months will mainly depend on the evolution of the Federal Reserve's monetary policy and geopolitical risks.
Overall, the gold market rose sharply this week, driven by both safe-haven demand and loose monetary policy, reaching a record high. As the Fed meeting approaches, the market will closely monitor the interest rate decision and its impact on gold prices. If the Fed cuts interest rates by 50 basis points as the market expects, gold prices may further break through the 2600 USD/oz level; conversely, if the rate cut is less than expected, gold prices may face some short-term adjustment pressure. However, the long-term bullish trend of gold remains unchanged against the backdrop of global economic uncertainty and loose monetary policy.
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In fact, as gold prices fluctuate, Wall Street's major banks have recently shown a clear divergence in their views on gold prices. Unlike Goldman Sachs and Deutsche Bank, which are optimistic about gold's performance, Citigroup believes that the long-term outlook for gold prices is not optimistic.
Although gold prices rose this week, market volatility has clearly increased. While the US-UK agreement is symbolic, its content is limited and insufficient to alleviate concerns about a global economic slowdown. Therefore, gold prices will continue to fluctuate between safe havens and policy signals, closely monitoring the Federal Reserve's interest rate expectations and global trade sentiment.