Gold (XAU/USD) begins the new trading week in a bullish consolidation phase, hovering just below the $3,600 per ounce mark after reaching an all-time high last Friday.
The precious metal surged on the back of weaker-than-expected US jobs data and heightened expectations for Federal Reserve (Fed) rate cuts, but a modest US Dollar (USD) recovery and a generally positive risk sentiment across equity markets are currently acting as headwinds for further gains. In this piece, BluSkyMint’s broker, Nate McKenzie, thoroughly examines the topic for readers.
Record Run Faces Temporary Pause
Last week’s breakout to record levels reflected strong safe-haven demand, aggressive Fed policy easing bets, and central bank accumulation of gold reserves. However, with the Relative Strength Index (RSI) holding above 70 on the daily chart, gold appears overbought in the near term.
This has encouraged some traders to adopt a wait-and-see approach before committing to fresh bullish positions. The market narrative now suggests that consolidation is healthy, as it allows price action to stabilize and establish stronger support levels before any potential next leg higher.
USD Recovery and Risk Appetite Cap Upside
One of the primary factors limiting gold’s immediate upside is the modest recovery in the USD. The Greenback rebounded from its lowest level since July 28, supported by a technical correction following last week’s sharp losses.
The US Dollar Index (DXY) showed early-week strength, exerting downward pressure on the non-yielding metal as gold and the USD generally maintain an inverse correlation.
Adding to this, a positive risk tone across global equity markets has reduced the urgency for investors to seek safety in gold. With stock indices pushing higher on improved market sentiment, some short-term safe-haven demand for gold has receded, further restricting momentum beyond the $3,600 mark.
Fed Rate Cut Bets Still Provide a Strong Backdrop
Despite the USD’s rebound, expectations of Fed rate cuts remain a powerful driver supporting gold’s structural bullish outlook. Friday’s US Nonfarm Payrolls (NFP) report revealed that the economy added just 22,000 jobs in August, well below consensus estimates.
Moreover, prior months saw downward revisions, including a 13,000 job loss in June, the first contraction since December 2020.
The details of the report underscore weakening labor market conditions:
- Unemployment Rate ticked up to 4.3%, in line with forecasts.
- Labor Force Participation rose slightly to 62.3%.
- Wage inflation, measured via Average Hourly Earnings, slowed to 3.7% YoY from 3.9% YoY in July.
These figures have significantly reinforced the belief that the Fed may embark on an aggressive easing cycle. Traders are now pricing in not only the possibility of a 50 bps “jumbo” cut in September, but also as many as three rate cuts by year-end.
Lower US yields reduce the opportunity cost of holding gold, thereby underpinning the commodity’s appeal.
Central Bank Demand Adds Structural Support
Beyond speculative positioning, central bank buying continues to provide long-term support for gold prices. Even at elevated levels near $3,600, global central banks have been consistent net buyers of gold, driven by diversification strategies and geopolitical hedging.
This trend underlines a strong fundamental demand base that helps insulate gold against deep pullbacks, reinforcing its bullish bias.
Technical Outlook: Consolidation Before Breakout
From a technical perspective, gold remains firmly in a bullish trend but requires a phase of consolidation to digest recent gains. The daily chart shows the RSI well above 70, confirming overbought conditions and signaling the potential for a near-term correction.
Key support levels to watch include:
- $3,545 region: initial demand zone where fresh buyers may re-enter.
- $3,510–3,500 zone: strong technical floor, likely to contain deeper pullbacks.
- $3,440 breakout level: previous resistance turned into a potential base of support.
On the upside, a sustained break above $3,600 would expose the next psychological barrier at $3,650, followed by potential extension toward the $3,700 zone if momentum resumes.
Conclusion
Gold’s latest surge to record highs highlights its resilience as a safe-haven asset and inflation hedge. While the USD bounce and improved risk sentiment are currently limiting upside momentum, the broader macroeconomic context, characterized by a weakening US labor market, rising odds of Fed rate cuts, and consistent central bank buying, suggests that the metal remains well-supported.
In the near term, traders should monitor key support zones and upcoming US inflation data for clues on the next directional move. A phase of consolidation is not only likely but also necessary to sustain the bullish trajectory.
As long as gold holds above critical technical supports, the path of least resistance remains to the upside, with $3,650–$3,700 the next potential targets once the consolidation phase matures.
