Gold price surges above $2,700 as Fed cut rates weighed on US yields – FXStreet

• Gold benefited from the Fed's dovish rate cuts and hints of flexibility in future policy direction.
• Investors are becoming cautious as Chairman Powell has suggested that rate cuts may be adjusted to changes in the labor market.
• The upcoming UoM consumer sentiment report and inflation expectations could further impact gold momentum.

Gold prices rose above $2,700 after the US Federal Reserve decided to cut interest rates and acknowledged that the impact of the US election will not be felt in the short term. As of this writing, XAU/USD is trading at $2,704, up over 1.7%.

Wall Street extended gains after the Federal Reserve unanimously cut the federal funds rate by a quarter of a percentage point. In their monetary policy statement, officials acknowledged solid economic expansion, although labor market conditions had softened. Both leaders acknowledged that while inflation is getting closer to the Fed's 2% target, it remains somewhat high.

Fed policymakers also said the risks of meeting the two mandates are “roughly balanced,” but acknowledged uncertainty in the economic outlook. They will remain vigilant about the risks on both sides of the mission.

Chairman Jerome Powell avoided giving specific guidance on future interest rate movements at a press conference, leaving room for flexibility after the December meeting. He emphasized that the Fed has the leeway to lower rates over time because of the strong economy. He acknowledged that policy will remain restrictive after today's rate cut as officials aim to reduce interest rates to neutral levels.

Powell said the Fed could accelerate rate cuts if they weaken or slow as the labor market approaches neutrality. However, he clarified that no final decision has been made yet.

Earlier, the US Bureau of Labor Statistics (BLS) reported that the number of Americans applying for unemployment benefits is expected to increase compared to the previous week.

Ahead of this week, the US economic schedule on Friday will include the release of the University of Michigan (UoM) consumer sentiment report for November, as well as a review of inflation expectations.

Daily Digest Market movements: Gold prices rise due to lower US real yield

• Gold prices soared as U.S. real yields, which are inversely correlated with gold bullion, fell by more than 11 basis points to 1.95%.
• Meanwhile, the dollar index (DXY), which measures six peer stocks, fell 0.76% to 104.31. Yields, particularly the benchmark 10-year bond coupon yield, fell 10 basis points to 4.33%.
• The Bureau of Labor Statistics reported that the number of new U.S. unemployment insurance claims rose from 218,000 to 221,000 for the week ending Nov. 2, in line with expectations.
• Statistics earlier this week showed a widening trade deficit and a slight slowdown in business activity. S&P Global noted a decline in services sector activity in October, although the ISM Services PMI for the month showed improvement.
• Investors expect the Fed to cut interest rates by 49 basis points by the end of the year, according to the Chicago Commodity Exchange Commission's December Federal Funds Rate Futures.

XAU/USD Technical Outlook: Gold Prices Fall, Sellers Target $2,650

Gold rallied around its 50-day simple moving average (SMA) of $2,639 and was heading toward $2,700, but buyers lacked the strength to push prices higher. The first significant resistance area for bulls will be at $2,700. If this clears, the next stop would be the 20-day SMA of $2,716 above $2,750, followed by the October 23 high of $2,758.

Meanwhile, below the November 6th low of $2,652, the yellow metal could challenge $2,639 before testing the October 10th low of $2,603.23. Momentum shifted to neutral as the Relative Strength Index (RSI) turned bullish, but there were solid signs.