Gold Drops to $2,500 as Fed Rate Cut Bets Ease Amid Cooling Inflation; What’s Next?
Arslan Butt•Sunday, September 1, 2024•2 min read
Gold prices edged lower on Friday, retreating from their recent highs as traders adjusted their expectations for future Federal Reserve rate cuts. The XAU/USD pair was trading at $2,497 after hitting an intraday high of $2,526.
The downward move came in response to the latest U.S. economic data, which indicated that inflation continues to moderate, reinforcing the possibility of a more measured approach by the Fed in its upcoming policy decisions.
US Inflation Eases, Paving the Way for Potential Rate Cuts
The U.S. Department of Commerce revealed that the core
Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred inflation gauge, remained stable in July, matching June’s 2.6% year-over-year increase but falling slightly short of market expectations of 2.7%.
This data supports the Fed’s strategy of gradualism, where officials are likely to proceed cautiously in easing monetary policy.
The FedWatch Tool from CME Group shows that traders have adjusted their bets, now pricing in a 69% chance of a 25 basis point (bps) rate cut in the September meeting, while the odds of a more aggressive 50 bps cut have dropped to 31%.
Federal Reserve
Chair Jerome Powell has emphasized the importance of assessing economic conditions closely, particularly labour market data, before making any firm decisions.
With U.S. Nonfarm Payrolls set to be released next Friday, the market’s focus will shift to employment figures, which Powell noted are tilted towards the upside.
Market Sentiment and Economic Indicators
Despite the retreat,
gold remains on track for a 2% gain in August, reaching an all-time high of $2,531 on August 20. However, the metal’s future trajectory is clouded by mixed economic signals.
While consumer spending has risen, income growth has lagged, raising questions about the sustainability of current spending levels.
Additionally, the University of Michigan’s Consumer Sentiment Index increased from 66.4 in July to 67.9 in August, suggesting that consumer confidence remains resilient despite inflation concerns.
The U.S. economic calendar is packed with significant data releases next week, including the ISM Manufacturing and Services PMIs, jobs data, and the Balance of Trade report.
These will provide further clues about the strength of the U.S. economy and the Fed’s likely path forward, influencing gold’s price action.
Gold Technical Outlook
Gold closed the week at $2,503.40, down 0.71%, indicating a potential bearish trend in the near term.
The metal is trading below its 50-day Exponential Moving Average (EMA) of $2,512.48, with the
Relative Strength Index (
RSI) at 42, pointing to growing bearish momentum, though the market is not yet oversold.
The
pivot point at $2,528.52 is a crucial level; a break above this could spark renewed bullish interest, targeting resistance levels at $2,545.16 and $2,562.46.
On the downside, a failure to maintain above $2,510 could see gold sliding towards support at $2,476.00, with further downside risk extending to $2,452.67.
Key Insights:
- Bearish Bias: Gold remains under pressure below $2,510, with support at $2,476.00.
- RSI at 42: Suggests bearish momentum but not yet reaching oversold conditions.
- Pivot Point $2,528.52: A key level for a potential bullish reversal.
As gold faces these mixed signals, investors and traders will be closely monitoring upcoming economic data and Fed communications to gauge the metal’s next move.
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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