Gold prices have seen a surge above $2,500 as traders anticipate the release of the US Consumer Price Index (CPI) for August. This rise in gold comes amidst expectations of a potential interest rate cut by the Federal Reserve (Fed), possibly by 25 or 50 basis points. At the time of writing, the price of XAU/USD is at $2,502, reflecting a 0.23% increase.
Market Overview: Key Influences on Gold Prices
Gold’s upward trend coincides with a positive market mood, highlighted by solid gains in US equities. Treasury yields have also seen a slight dip, with the 10-year Treasury note yielding 3.706%, which remains unchanged compared to last Friday’s figures.
Despite the strength of the US Dollar—evidenced by a 0.30% gain measured by the US Dollar Index (DXY)—bullion traders remain unfazed, maintaining their confidence in gold as a safe haven. Traders have revised their expectations for a rate cut, especially after the release of the recent Nonfarm Payrolls (NFP) data.
Focus on the Fed’s Interest Rate Decision
The August Nonfarm Payrolls report revealed that the US added 142,000 jobs, slightly below the expected 160,000. However, the unemployment rate fell from 4.3% to 4.2%, boosting market sentiment. Attention is now firmly fixed on the upcoming CPI data, which is anticipated to drop closer to the Fed’s target of 2%.
According to the CME FedWatch Tool, the odds of a 25 basis point rate cut stand at 73%, while the chances of a 50 basis point reduction are at 27%. Analysts believe the Fed may opt for a more conservative 25 bps cut to balance market conditions and avoid unnecessary risks.
Gold Price and Technical Outlook
Gold continues to hold strong, hovering above the critical $2,500 mark. However, buyers seem to be struggling to gain further momentum as prices remain below $2,510. The Relative Strength Index (RSI) shows a neutral outlook, indicating neither buyers nor sellers are currently in control.
If gold price manage to break above the year-to-date high of $2,531, this could pave the way for further gains, with $2,550 as the next target. A move beyond that level could push prices to $2,600, a significant psychological barrier. On the flip side, if gold drops below $2,500, the next support level would be around $2,470, followed by the May 20 high near $2,450 .
Fed’s Future Moves: What to Expect?
Fed officials have been increasingly dovish in their tone, signaling that rate cuts could help maintain economic stability. New York Fed President John Williams emphasized that rate cuts could stabilize the labor market, while Governor Christopher Waller pointed out that it might be time to start easing policies.
Additionally, Chicago Fed President Austan Goolsbee mentioned a strong consensus among policymakers in favor of lowering borrowing costs. All of these statements reinforce the likelihood of a rate cut at the upcoming Federal Open Market Committee (FOMC) meeting .
China’s Pause on Gold Purchases
Meanwhile, China’s central bank has continued its pause on gold purchases, marking the fourth consecutive month without acquiring any new reserves. This pause could affect global demand for gold, especially given China’s role as one of the largest consumers of the precious metal.
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