Gold has continued its historic climb, setting a new all-time high (ATH) above $3,703 on Tuesday. The increase comes after the metal traded in a narrow range just below that mark for much of the day’s trading. Strong demand underpins this increase, itself supported by a weakening U.S. dollar and an evolving outlook for U.S. monetary policy. Silver (XAG/USD) has pulled back with some momentum and is currently trading just above $18,200. Although this represents a small decrease, it remains close to record levels.
Here’s why gold prices are building bullish strength on multiple fronts. Recent economic data and market sentiments regarding Federal Reserve policy are driving forces behind this trend. The old time high of $3,675 now serves as gold’s first line of support. Moreover, the 21-period Simple Moving Average on the 4-hour chart lies nearby at roughly $3,652. According to analysts, a clear break beneath this support zone would trigger additional downside pressures for gold. They’re hacking to bring down $3,620 now, which would be the next big psychological hurdle.
Should gold manage to breach the psychological $3,700 threshold, that would be the first warning sign. Some analysts believe prices will crash as high as $3,730-$3,750. When this piece went to press, gold was trading around $3695, just under that key level.
Against the backdrop of this gold rally, important trends in U.S. economic indicators are playing a pivotal role in shaping market dynamics. The U.S. Retail Sales report showed much stronger-than-expected consumer spending for August, taking at least a little wind out of the recession worry sails for investors. Retail sales increased 0.6% M/M in August, much higher than expectations for a 0.2% increase. July’s numbers were revised up to 0.6%, an increase from the previously reported 0.5%. This upward revision puts a bright face on the consumption momentum as we look ahead to the third quarter.
These bearish economic indicators have aided in the broader pressure on the U.S. dollar. The U.S. Dollar Index (DXY) has plunged to multi-week lows. This broad-based greenback weakness reflects the second strong wave of dollar weakness after markets fully price in a 25-basis-point Fed cut. This expected easing cycle is made all the more evident by the votes expected at Wednesday’s policy meeting.
The Federal Reserve’s actions, both for and against climate change, are under intense scrutiny. That’s particularly the case now that Stephen Miran, one of the former President Trump’s top economic advisers, was confirmed to the Federal Reserve Board Monday. If confirmed as anticipated, Miran will be in her seat in time to vote with Lisa Cook in what could be a decidingly close vote on Wednesday. Investors are looking for clues from Fed Chair Jerome Powell’s upcoming press conference. They’re looking for hints about how much further and faster the current easing cycle will go.