Gold price forecast (XAU/USD) fell close to $2,500 early Monday in Asia, impacted by a stronger US Dollar. Although this pressure is evident, the possibility of a rate cut by the US Federal Reserve in September could limit the downside.
The US Commerce Department recently reported a 0.2% month-on-month increase in the Personal Consumption Expenditures (PCE) Price Index for July. This matched market expectations. On an annual basis, PCE inflation remained at 2.5% in July. Excluding volatile items like food and energy, the core PCE also rose by 0.2% in July and increased by 2.6% from the previous year, slightly below the expected 2.7%.
Alex Ebkarian, Chief Operating Officer at Allegiance Gold, noted that the PCE report indicates the Federal Reserve may no longer be primarily concerned with inflation. Instead, they seem to be focusing more on unemployment data, which supports the case for a possible rate cut in September.
Impact of Fed Rate Expectations on Gold Prices
Traders have slightly increased their bets on a 25 basis points (bps) rate cut by the Federal Reserve in September to around 70%. There is also a 30% chance of a 50 bps cut, based on data from the CME FedWatch tool. A rate cut would support gold prices, as lower interest rates reduce the opportunity cost of holding non-yielding assets like gold price forecast.
Middle East Tensions and Gold Demand
In addition to US economic factors, geopolitical events are also influencing gold prices. For instance, Israel’s largest labor group is planning a nationwide strike to push for a Gaza cease-fire and the release of hostages held by Hamas. If tensions in the Middle East escalate, safe-haven demand for gold could increase, pushing prices higher.
China’s Economic Outlook and Physical Gold Demand
However, concerns about physical gold demand and China’s economic slowdown may limit gold’s upside potential. China, the world’s largest buyer of gold, is facing economic challenges. The Chinese Caixin Manufacturing PMI for August is expected to rise slightly to 50.0 from 49.8. If this outcome is weaker than anticipated, it could put additional pressure on gold price forecast.
Conclusion
While gold prices are currently under pressure due to a stronger US Dollar, potential rate cuts by the Federal Reserve and geopolitical tensions in the Middle East may provide support. However, concerns about physical gold demand and economic conditions in China could limit any significant upward movement.
For daily updates on gold prices, check out our Daily Gold Update and explore other insights on Daily Gold Signal.
