Gold price extends its rally as the US Dollar weakens

What’s driving gold prices?

Gold surged to an all-time high in today’s session, nearing $3,700 per ounce. The dollar’s decline comes as markets grow increasingly convinced that the Federal Reserve will resume interest rate cuts at tomorrow’s meeting, following months of hesitation due to elevated inflation.

Key factors behind gold’s rise include persistent geopolitical tensions (most notably the Russia-Ukraine war and ongoing tensions in the Middle East) along with robust demand from central banks. The People’s Bank of China, for instance, has added roughly 38 tons of gold to its reserves since November 2024.
What are markets expecting from the Federal Reserve meeting?

Attention now turns to the Fed’s policy decision, where a 25-basis-point rate cut is widely anticipated. Investors will also scrutinize the Fed’s updated economic projections for growth and inflation, as well as the dot plot, which will reveal FOMC members’ views on the path of interest rates in the near and medium term, and whether they align with market expectations for three cuts this year.

In addition, markets will closely follow Fed Chair Powell’s press conference for further insight into monetary policy, particularly given the growing influence of President Trump over the Federal Reserve Board of Governors. This has raised concerns about the Fed’s independence, which, if undermined, could weigh further on the dollar and in turn support precious metals.

Technical Outlook 

Earlier this month, gold broke above its April 22 high, clearing the $3,500 barrier and extending its rally to record highs near $3,700 today. A daily close above this level would confirm strong bullish momentum and could pave the way for gains towards the $3,800 mark. Still, the $3,750 psychological resistance level remains a hurdle to watch.

Levels to Watch if Momentum Fades

Failure to secure a daily close above $3,700 may signal weakening momentum, which may prompt profit-taking among bullish traders. This could drive prices back toward the $3,600 level.

The Relative Strength Index remains in overbought territory (above 70), underlining the strength of the rally. However, a dip below 70 would signal a potential correction, increasing the likelihood of a pullback in gold prices.

Gold – Daily Price Chart

Gold hovers near record high ahead of Fed decision

What’s happening:-

 Gold prices rose on Friday, remaining comfortably above the $3,670 resistance level.

What happened: Signs of weakness in the US labour market sparked speculations of the Federal Reserve announcing its first interest rate cut of the year.

Gold continued to climb last week despite having risen by around 40% year to date.

Why it matters:-

 Data released by the US last week showed initial jobless claims rising to near four-year highs. Initial jobless claims rose 27,000 from the previous week to 263,000 in the first week of September, well above market estimates of 235,000. Data indicated that the US economy had added 911,000 fewer jobs than was expected in the 12 months to March this year.

Gold is constantly on the rise

Consumer prices recorded their biggest monthly rise in seven months in August, although producer prices unexpectedly declined.

Investors widely expect the Fed to cut interest rates by 25 basis points (bps) at its meeting later this week, while there are some speculations of a bigger of 50 bps. Meanwhile, US President Donald Trump is continuously pushing the Fed to announce rate cuts. Gold gets a boost with any decline in interest rates, as this reduces the opportunity cost of holding the yellow metal.

The demand for gold was also supported by uncertainties caused by Trump continuing to push its G7 allies to impose higher tariffs on India and China as these nations continue buying crude from Russia. Rising concerns in the Middle East lent further support to gold prices.

Dollar and gold today