Gold prices edged higher during Tuesday’s trading session (August 27), maintaining a gentle upward trend above the key $2,500/oz mark and not far from the all-time record high set last week. However, some analysts suggest that the precious metal is facing a strong resistance level and would require fresh catalysts to push significantly higher.
At the close of trading in New York, spot gold rose by $6.3/oz compared to the previous session’s close, equivalent to a 0.26% increase, reaching $2,524.9/oz, according to data from the Kitco exchange.
More than 7 hours earlier in the day in Vietnam, spot gold prices in Asia had climbed by $0.5/oz compared to the US close, equivalent to a 0.02% increase, trading at $2,525.4/oz. Converting this using Vietcombank’s selling rate for USD results in a price of approximately VND 76.1 million/tael, up VND 200,000/tael from yesterday morning’s rate.
The all-time record for spot gold prices stands at $2,531.6/oz, achieved last week.
The weak US dollar, lingering near two-year lows, continues to underpin the upward trajectory of gold prices. However, investors are awaiting the release of US inflation data later this week to gain clearer insights into the potential extent of the Federal Reserve’s interest rate cut in September.
The Dollar Index, measuring the greenback’s strength against a basket of six other major currencies, fell by 0.3% on Tuesday, settling at 100.55. According to MarketWatch data, the index is hovering at its lowest level since October 2022.
“The weaker dollar provided support for gold prices today. The dip in prices earlier in the session also triggered some bottom-fishing,” remarked Bob Haberkorn, a strategist at RJO Futures, to Reuters.
This week’s key economic indicator from the US is the Personal Consumption Expenditures (PCE) price index—the Fed’s preferred measure of inflation—which is expected to be released on Friday. With the likelihood of a Fed rate cut in September already certain, investors will scrutinize the “heat” of the PCE report to fine-tune their expectations for the pace of the Fed’s rate reduction.
While hotter-than-expected PCE data could slightly influence Fed policy, the central bank is still anticipated to lower rates in September and potentially continue doing so before year-end, as per Kitco Metals’ senior analyst, Jim Wyckoff.
Data from CME’s FedWatch Tool indicates that markets are wagering on a 100% probability of the Fed cutting rates at its September 18 meeting, with a 36% chance of a 0.25 percentage point reduction and a 64% likelihood of a 0.5 percentage point cut. For the Fed’s November and December meetings, the odds of rate cuts at each gathering also stand at 100%.
Gold prices have demonstrated resilience above the crucial $2,500/oz level and are on track to complete one of the strongest years since 2020. The Fed’s dovish stance, central banks’ net gold purchases, and ongoing geopolitical tensions in the Middle East remain fundamental factors driving this bullish sentiment for gold.
However, the upward momentum fueled by these factors appears to be waning. Consequently, gold prices have shown signs of stagnation, requiring fresh catalysts to induce more pronounced changes.
“Much of the positive news for gold has already been factored into prices. We believe that at this point, the potential for sharp price increases is limited,” noted a Commerzbank report.
Ole Hansen, head of strategy at Saxo Bank, concurs with this perspective.
“Gold prices have already priced in the likelihood of the Fed initiating a rate cut cycle in September. Therefore, it will be challenging for gold to attain significantly higher levels in the short term unless US economic data weakens substantially—a basis for the Fed to opt for a 0.5 percentage point reduction instead of a 0.25 percentage point cut in September,” Mr. Hansen told CNBC.
The strategist predicts that gold prices will consolidate in the coming months but sees a low probability of a sharp decline to the $2,400/oz level.
From a technical perspective, analyst Vladimir Zernov shares a similar view, noting that gold prices are currently “stuck.”
“Gold is stuck below the critical resistance zone of $2,520-2,530/oz as traders await fresh catalysts. The technical setup remains favorable for gold, but a decisive close above $2,530/oz is necessary to ignite stronger upward momentum,” Mr. Zernov commented on Kitco News.
Gold prices have consistently broken records this year, currently up about 22% from the start of 2022. Many experts maintain a positive outlook for gold in the medium and long term.
“Gold prices could surpass $2,700/oz by year-end if the Fed slashes rates by a total of one percentage point before Christmas, as currently expected by markets,” remarked Han Tan, Exinity Group’s head of market analysis, to CNBC. “December has also been the month with the highest average price gain for gold in the last five years. If this seasonal trend repeats, gold bulls could be in for a significant celebration.”
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