The price of gold recently saw a slight dip, dropping 0.18% in late North American trading after hitting a daily high of $2,529. This decline came as US inflation data prompted traders to reduce their positions in the metal due to rising expectations that the Federal Reserve (Fed) might begin cutting interest rates soon. Gold (XAU/USD) now trades at $2,511.
Inflation Data Impacts Gold Sentiment
Despite the slight drop, the market’s overall sentiment towards gold remains positive following the release of August’s Consumer Price Index (CPI) by the US Bureau of Labor Statistics. While the monthly headline inflation remained stable, the core CPI, which excludes food and energy, saw a small increase.
Investors responded by pushing US Treasury yields higher, fearing that the Fed might opt for a smaller interest rate cut of 25 basis points (bps) instead of the expected 50 bps. The 10-year US Treasury yield rose to 3.655%, while the US Dollar Index (DXY) reached a daily peak of 101.82 before stabilizing at 101.68.
Market Reaction and Fed Rate Expectations
According to the CME FedWatch Tool, traders have adjusted their expectations, with a 29% chance of a 50 bps rate cut, while the likelihood of a 25 bps cut is at 71%. These changes in expectations are shaping the outlook for gold prices as interest rates directly impact the non-yielding asset.
Geopolitical Concerns
In other developments, geopolitical tensions between the US, UK, and Russia continue to heighten concerns. The possibility of Ukraine receiving more support to use Western weapons within Russia adds uncertainty to global markets, influencing safe-haven assets like gold.
Gold Price Reaction to CPI Data
The release of US CPI data for August showed that headline inflation dipped to 2.5% year-over-year, below the expected 2.6%. However, core inflation remained steady at 3.2% year-over-year. The monthly core inflation rate ticked up from 0.2% to 0.3%. This data impacted market expectations of Fed policy changes, with projections indicating a smaller interest rate cut.
Gold’s Technical Outlook: Price Support and Resistance
Technically, gold remains relatively stable, trading between $2,500 and $2,531. The Relative Strength Index (RSI) suggests a neutral market, indicating a lack of control from either buyers or sellers. If gold prices manage to break the $2,531 resistance, the next target would be the $2,550 level, followed by the psychological barrier of $2,600.
On the downside, if gold falls below $2,500, support can be found near the August 22 low of $2,470. Further declines could push the price toward the $2,440-$2,450 range, supported by the 50-day Simple Moving Average (SMA).
Conclusion
Gold’s resilience above the $2,500 level suggests that despite recent losses, the precious metal remains a key player in times of economic uncertainty. Traders and investors alike are closely watching inflation trends and the Fed’s next moves, which could dictate future price action for gold.
For more insights on daily gold updates, check out our Daily Gold Update. For further analysis, visit Daily Gold Signal.
