• The price of gold reached a novel all-time high on Thursday.
• The key factors are falling global interest rates, worsening geopolitical conflicts and an increased risk of monetary easing by the Federal Reserve.
• The XAU/USD pair is overbought but rising and is in an uptrend on all time frames.

Gold (XAU/USD) is trading higher, breaking previous records and hitting a novel all-time high of $2,680 per troy ounce on Thursday. Falling global interest rates, escalating conflict in the Middle East and a weaker US dollar (USD) due to increased chances that the US Federal Reserve (Fed) will continue its aggressive monetary easing strategy are the factors driving its rally.

Gold reaches record levels

Gold hits a novel record high of $2,680 on Thursday. The recent interest rate cuts by the People’s Bank of China (PBoC), the Swedish Riksbank and the Czech National Bank are positive for gold as they lower the opportunity cost of holding non-interest bearing assets, making them more attractive to investors.

Another positive factor is the escalation of the conflict between Israel and Hezbollah. On Wednesday, amid an ongoing exchange of missiles between the two foes, IDF chief Herzi Halevi told his troops in northern Israel that they should prepare for a ground offensive into Lebanon. If such an invasion were to take place, it would further boost risk aversion and boost safe-haven flows into the yellow metal.

Gold rises on expectations of 50 basis point rate cut by the Federal Reserve

While stronger-than-expected novel home sales data in the US in August and solid mortgage applications on Wednesday provided no evidence that the US economy is heading for a tough landing, markets are still pricing in another stimulative 50 basis points (bps) (0.50%) rate cut by the Federal Reserve (Fed) at its November meeting. Labor market data could be more critical in this regard, while jobless claims data released on Thursday could have an impact on both the US dollar and gold.

The probability of a 50 bps jumbo market cut, according to the CME FedWatch tool, remains above 60%, which is higher than the alternative – a modest 25 bps cut. This maintains pressure on the US dollar and adds additional tailwind to gold, which is primarily priced and traded in USD.

Tuesday’s data confirmed investors’ worst fears after the Conference Board’s consumer confidence index fell to 98.7 in September from a revised 105.6 in August. The reading was well below consensus estimates. Labor market concerns expressed by survey respondents were a major factor.

Gold could also hold its highs after Fed Gov. Adriana Kugler (a voting member) delivered a relatively dovish speech on Wednesday. Kugler’s comments earned a rating of 3.2 on FXStreet’s FedTracker, which rates the tone of Fed officials’ speeches on a dovish-to-hawkish scale from 0 to 10, using a custom AI model.

US Federal Reserve Chairman Jerome Powell is scheduled to speak on Thursday. It could affect market expectations about US Federal Reserve policy and, in turn, the price of gold.

Technical Analysis: Gold Consolidates Just Below All-Time Highs

Gold hits a record high of $2,680 on Thursday. Overall, it is in an uptrend in the brief, medium and long term. Since the basic principle of technical analysis is that “the trend is your friend,” the chances of an even bigger rally for the yellow metal are even greater.

XAU/USD Daily Chart

However, gold is also overbought now, according to the Relative Strength Index (RSI), which increases the probability of a pullback. He also advises traders not to boost their long positions. If gold breaks overbought, it will be a sign to close long positions and sell brief ones, as it would suggest that a correction is in the works.

That said, the RSI could remain overbought for quite some time in a strongly trending market, and if gold breaks above its all-time high, that would confirm a higher high and an extension of the uptrend. The next upside targets are the round numbers of $2,700 and then $2,750.

If a correction occurs, forceful support will be found at $2,600 (September 18 high), $2,550 and $2,544 (0.382 Fibonacci retracement of the September rally).