Gold (XAU/USD) Rises to $2,325 as Fed Rate Cut Speculations and Lower USD Boost Demand

Gold (XAU/USD) is attracting bids near $2,315 during Monday’s early American session as the US Dollar (USD) corrects lower.

GOLD Price Chart - Source: Tradingview

This correction is driven by strong speculation that the Federal Reserve (Fed) will implement two rate cuts this year. The US Dollar Index (DXY), which measures the greenback against six major currencies, has fallen to 105.60. Expectations for the Fed to reduce interest rates have grown amid signs of easing inflation in the United States.

Easing Inflation and Economic Indicators

Recent economic data has bolstered expectations of Fed rate cuts. The US Consumer Price Index (CPI) report indicated a greater-than-expected deceleration in price pressures in May. Additionally, the preliminary S&P Global Purchasing Managers Index (PMI) for June showed a moderate cooling in cost growth. The report noted, “Selling price inflation cooled to a five-month low in June. The rate of increase fell to a five-month low in the services sector and a six-month low in manufacturing.”

The CME FedWatch tool suggests that the Fed may begin easing policy at its September meeting, with subsequent cuts likely in November or December. The 30-day Federal Funds futures indicate a 66% probability of a rate cut in September. Despite this, some Fed policymakers expect only one rate cut this year, based on the June FOMC economic projections. They want to see sustained declines in inflation before shifting to a policy-normalization process.

Gold Price Dynamics Amid Bond Yields and Economic Data

Gold prices find buying interest near $2,315 after a sharp decline last Friday. The precious metal faced selling pressure as the USD strengthened following an upbeat S&P Global PMI report, which indicated unexpected economic expansion. The Composite PMI rose to 51.7, surpassing expectations of a decline to 51.0 from the previous 51.3. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, remarked, “The PMI is running at a level broadly consistent with the economy growing at an annualized rate of just under 2.5%. The upturn is broad-based, driven by strong domestic spending in the service sector and a recovering manufacturing sector.”

Higher US bond yields also impact gold prices. The 10-year US Treasury yields have bounced back to 4.27%, increasing the opportunity cost of holding non-yielding assets like gold. As bond yields rise, investors might prefer interest-bearing assets over gold.

Global Tensions and Upcoming Economic Reports

On the geopolitical front, a security pact between Russian President Vladimir Putin and North Korean leader Kim Jong-un has raised global tensions. The treaty, covering political, trade, investment, and security cooperation, includes a pledge for mutual military assistance if either country is attacked. Such geopolitical risks could provide support for gold prices, limiting their downside.

This week, investors will focus on revised Q1 Gross Domestic Product (GDP) data and the core Personal Consumption Expenditure (PCE) price index for May. The core PCE price index, the Fed’s preferred inflation measure, will provide fresh insights into the timing and extent of potential rate cuts this year.

In conclusion, while gold prices are currently supported by a weaker USD and expectations of Fed rate cuts, rising bond yields and geopolitical tensions add layers of complexity to its price dynamics. Investors should keep a close eye on upcoming economic data and global developments to gauge the future direction of gold prices.

Gold Price Forecast: Technical Outlook

Gold is currently trading at $2325.68, showing a slight increase of 0.15%. The pivot point, marked by the green line, is $2318. Immediate resistance levels are $2330, $2338, and $2350. On the downside, immediate support is at $2308, followed by $2299 and $2287.

GOLD Price Chart

The RSI stands at 39, indicating a neutral to slightly oversold condition. The 50-day Exponential Moving Average (EMA) is at $2335, suggesting that gold is slightly below its short-term trend.

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Arslan Butt
Index & Commodity Analyst
Arslan Butt serves as the Lead Commodities and Indices Analyst, bringing a wealth of expertise to the field. With an MBA in Behavioral Finance and active progress towards a Ph.D., Arslan possesses a deep understanding of market dynamics. His professional journey includes a significant role as a senior analyst at a leading brokerage firm, complementing his extensive experience as a market analyst and day trader. Adept in educating others, Arslan has a commendable track record as an instructor and public speaker. His incisive analyses, particularly within the realms of cryptocurrency and forex markets, are showcased across esteemed financial publications such as ForexCrunch, InsideBitcoins, and EconomyWatch, solidifying his reputation in the financial community.
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