Gold (XAU/USD) extended its record-setting rally for the third consecutive session on Tuesday, climbing beyond the $3,650 per ounce mark during Asian trading.
The precious metal continues to attract strong demand as Federal Reserve (Fed) rate cut bets weigh heavily on the US Dollar (USD) and fuel flows into the non-yielding safe-haven asset. In this piece, Nabotex Group’s broker Richard Miller thoroughly examines the topic for readers.
The rally builds on momentum sparked by last week’s US Nonfarm Payrolls (NFP) report, which highlighted signs of a weakening labor market and reinforced expectations that the Fed will begin lowering borrowing costs at its upcoming policy meeting. Traders are now pricing in not only a rate reduction next week but also the possibility of three cuts by year-end, with some even speculating on the potential for a larger jumbo cut at the September 16–17 FOMC meeting.
This shifting monetary outlook has dragged the US Dollar Index (DXY) to its lowest level since July 28, undermining the greenback’s appeal and supporting continued demand for gold. However, with the metal trading in extremely overbought conditions, analysts caution that a period of consolidation or modest pullback may be required before bulls attempt fresh positions.
Daily Market Drivers: Rate Cut Bets and Political Instability
The key driver for gold’s record-breaking momentum remains the Federal Reserve’s policy trajectory. Softer US labor data has reaffirmed expectations that the Fed will begin a cycle of monetary easing, boosting risk appetite across global markets.
However, while equities and high-yield assets benefit from falling interest rate expectations, gold continues to stand out due to its safe-haven status and negative correlation with the US Dollar.
Compounding the USD’s weakness are growing political pressures. The US President has openly criticized Fed Chair Jerome Powell for being slow to act on monetary policy, while calls for the dismissal of certain Fed governors have raised fresh concerns over the central bank’s independence.
Such developments have unsettled markets and added to downward pressure on the US currency.
Beyond US dynamics, international political uncertainty has also supported gold demand. In France, Prime Minister Francois Bayrou lost a crucial vote of confidence and was forced to resign, destabilizing Europe’s second-largest economy.
Meanwhile, in Japan, Prime Minister Shigeru Ishiba announced his intention to step down as leader of the ruling Liberal Democratic Party (LDP), creating a leadership vacuum. These political disruptions add to the sense of instability that often channels flows into safe-haven assets such as gold.
Technical Outlook: Overbought but Still Bullish
From a technical perspective, gold’s relentless rally has pushed the Relative Strength Index (RSI) well above the 70.0 threshold, signaling overbought conditions. Typically, such levels suggest caution and raise the risk of a short-term correction before the next leg higher.
Should a pullback occur, traders may look for support around the $3,600 psychological level, which could attract fresh dip-buying interest. A more pronounced decline could test the $3,565–3,560 support zone, followed by last Thursday’s swing low near $3,510.
A break below the $3,500 psychological mark would expose gold to deeper downside pressure, though strong underlying fundamentals suggest any sustained drop remains unlikely.
On the upside, momentum remains constructive. As long as gold holds above key support levels, the path of least resistance appears tilted towards further gains.
If momentum continues, traders will look to the $3,700 level as the next upside target, with potential for extension should Fed easing expectations solidify further.
Upcoming Data: US Inflation in Focus
While political and geopolitical dynamics remain influential, the near-term focus now shifts to upcoming US inflation data. Wednesday’s release of the Producer Price Index (PPI) and Thursday’s Consumer Price Index (CPI) will play a crucial role in shaping expectations for Fed policy beyond the September meeting.
Stronger-than-expected inflation readings could temper aggressive rate cut bets, offering temporary relief to the USD and slowing gold’s upward momentum. Conversely, softer inflation figures would reinforce expectations of multiple rate cuts and provide fresh fuel for bullion’s rally.
Conclusion: Strong Fundamentals, Caution on Positioning
Gold’s surge to record highs above $3,650 per ounce underscores the powerful mix of factors currently driving demand: Fed rate cut expectations, a weaker US Dollar, political uncertainty in major economies, and persistent geopolitical tensions. While the technical picture warns of near-term overbought risks, the broader fundamental backdrop continues to favor gold’s upside trajectory.
For traders and investors, the coming days will be pivotal. With critical US inflation data and the FOMC meeting on the horizon, volatility is likely to remain elevated.
While some consolidation appears warranted after three consecutive record-setting sessions, any corrective pullback is likely to be met with strong buying interest, confirming gold’s role as the asset of choice in a climate defined by uncertainty and monetary easing expectations.
