This week, gold surged to a new record high above $2,600. However, the near-term technical outlook indicates that XAU/USD is nearing overbought territory. Upcoming Fedspeak and PCE inflation data could play a significant role in influencing gold's value next week.

Gold (XAU/USD) reached an all-time high above $2,600 as the US Dollar (USD) faced significant selling pressure following the Federal Reserve’s (Fed) decision to cut the policy rate by 50 basis points. Currently, gold appears to be approaching overbought conditions ahead of the release of Friday’s Personal Consumption Expenditures (PCE) Price Index, which may act as a key catalyst for its price movement.

Bullish Response to Dovish Fed Decision
After closing the previous week on a strong note, gold entered a consolidation phase on Monday as market participants took a cautious approach ahead of the Fed's policy announcements. Consequently, XAU/USD ended Tuesday in the red.

On Wednesday, the Fed announced a 50 basis point cut to a range of 4.75%-5%. Prior to this, the CME FedWatch Tool indicated a 40% probability of a 25 basis point reduction, so the market reacted sharply with a USD sell-off. This move provided gold with bullish momentum, allowing it to hit the new high of $2,600. Additionally, the revised Summary of Economic Projections (SEP) indicated expectations for another 50 basis point reduction in the remaining policy meetings of the year.

However, following the immediate reaction, a negative shift in market sentiment led to a rebound in the USD later that day, causing XAU/USD to reverse and close lower. Investors interpreted the significant rate cut as a sign that the Fed was slow to respond to the deteriorating economic outlook. Nevertheless, Fed Chairman Jerome Powell's reassuring remarks about the labor market and economic growth alleviated some concerns.

Powell stated, “We don't think we need to see further loosening of the labor market to get inflation down to 2%,” and indicated that there were no immediate signs of an economic downturn.

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Once the Fed's announcement settled on Thursday, risk appetite returned to the markets. The USD faced renewed selling pressure, setting the stage for another rise in gold. After the US Department of Labor reported a decline in first-time applications for unemployment benefits, XAU/USD briefly corrected lower in the early American session. However, with Wall Street’s main indexes posting significant gains, the USD couldn't maintain its recovery, allowing gold to finish the day higher.

In the absence of major data releases, gold extended its rally, achieving another record above $2,600 on Friday.

Focus Shifts to US Data and Fedspeak
Next week, the US economic calendar includes preliminary S&P Global Manufacturing and Services Purchasing Managers Index (PMI) data for September on Monday. If the Manufacturing PMI exceeds 50 and the Services PMI stays above that threshold, it could bolster confidence in the economic outlook, potentially supporting the USD and leading to a correction in XAU/USD. Conversely, weaker PMI results might negatively impact the USD.

On Thursday, the US Bureau of Economic Analysis (BEA) will publish the final revision of the second-quarter Gross Domestic Product (GDP) data, which is expected to have a minimal market impact. On Friday, the BEA will release PCE Price Index figures for August, a key gauge of inflation for the Fed. Although inflation concerns have eased recently, a strong increase of 0.3% or more in the core PCE Price Index could strengthen the USD. Conversely, a weak reading may pressure the USD downward.

With the Fed’s blackout period ending, market participants will closely monitor comments from policymakers. According to the CME FedWatch Tool, there is a nearly 70% chance the Fed will lower rates by at least another 75 basis points in 2024. If officials suggest resistance to further large rate cuts this year, it could result in a USD rebound, dragging XAU/USD lower. Alternatively, any indication of a possible 50 basis point cut in upcoming meetings may weaken the USD's demand.

Gold's Technical Outlook
The Relative Strength Index (RSI) on the daily chart rose to 70 this week. Gold remains within the upper half of the ascending regression channel established since late June, with the upper limit serving as key resistance at $2,630. Historical patterns suggest that when the daily RSI hits 70, it often leads to corrections, indicating that buyers may hesitate to push prices higher in the near term, potentially leading to a decline if gold surpasses $2,630.

On the downside, $2,600 serves as interim support, followed by $2,570 (the mid-point of the ascending channel) and $2,530 (where the 20-day Simple Moving Average is located).

Given that gold is trading at unprecedented levels, pinpointing a near-term target on the upside is challenging. The $2,700 mark could emerge as the next resistance if investors overlook overbought conditions.