Gold Hits Record High as Dollar Weakens

Gold prices reached an all-time high on Friday, propelled by a weaker dollar and growing expectations for a U.S. interest rate cut. The precious metal’s rally reflects increasing investor demand for safe-haven assets as geopolitical tensions persist.

At 15:23 GMT, XAU/USD is trading $2487.04, up $30.50 or +1.24%.

Inflation and Federal Reserve Outlook

Recent economic data suggests inflation is easing, potentially influencing the Federal Reserve’s monetary policy. The July producer price index and consumer price index both indicated a slowdown in price increases. The consumer price index rose 0.2% on a monthly basis in July, as expected, and was up 2.9% from a year earlier, which was less than forecast.

These figures could keep the Federal Reserve on course to begin its monetary easing cycle with a 25-basis point rate cut in September. Traders are now focusing on the minutes from the Fed’s previous policy meeting for clues about future rate decisions. Additionally, market participants are eagerly awaiting Fed Chair Jerome Powell’s upcoming speech at the Jackson Hole symposium, which could provide crucial insights into the central bank’s economic outlook and policy stance.

Geopolitical Tensions and Economic Indicators

Geopolitical pressures in the Middle East have intensified, further boosting gold’s appeal. The Israeli army ordered a new evacuation in southern and central Gaza, areas previously designated as humanitarian safe zones. These events underscore gold’s role as a hedge against political uncertainties.

Meanwhile, U.S. economic indicators present a mixed picture. Retail sales for July surged 1%, significantly exceeding the expected 0.3% increase. This robust consumer spending has eased recession fears to some extent. However, the housing market shows signs of weakness. Single-family housing starts plummeted 14.1% in July to an annual rate of 851,000 units, marking the fifth consecutive monthly decline. Year-on-year starts have dropped by 14.8%, attributed to higher mortgage rates and escalating home prices.

Treasury Yields and Dollar Performance

U.S. Treasury yields decreased on Friday as investors reassessed the economic landscape. The dollar index fell 0.3% and was on track for its fourth week of losses, enhancing gold’s attractiveness to overseas buyers. This dollar weakness comes despite the strong retail sales data, suggesting that market participants are weighing multiple factors in their currency assessments.

Market Forecast

The outlook for gold appears bullish in the short term. Several factors support this view:

  1. The weakening dollar, which makes gold more affordable for international investors.
  2. Expectations of potential interest rate cuts, which typically boost non-yielding assets like gold.
  3. Ongoing geopolitical tensions, enhancing gold’s safe-haven appeal.
  4. Mixed economic indicators, creating uncertainty that often drives investors towards gold.

Investors should closely monitor Fed Chair Powell’s remarks next week, as they could significantly influence both gold prices and overall market sentiment. The precious metal is expected to continue its upward trend, barring any unexpected shifts in monetary policy or global economic conditions.

Technical Analysis

Daily Gold (XAU/USD)

XAU/USD soared to a record high on Friday after taking out the previous top at $2483.74. The rally stopped at the psychological $2500.00 level.

On the downside, the nearest support is the minor bottom at $2432,22, A trade through this price will shift momentum to the downside. The major support is the 50-day moving average at $2380.05.