Gold (XAU/USD) Price Holds Near $2,500 Amid Fed Rate Cut Speculation

Gold (XAU/USD) is struggling to hold its ground near the $2,500 mark as the US dollar strengthens, dampening investor demand for the non-yielding asset.

This price movement comes as hopes for a 50-basis-point rate cut by the Federal Reserve fade. According to CME Group’s FedWatch tool, the likelihood of a larger cut has diminished to 29%, while traders now see a 71% chance of a smaller 25-basis-point reduction during the Fed’s September 17-18 meeting.

The key factor driving these expectations is last Friday’s mixed US employment data, which showed wage growth but fewer-than-expected new jobs.

Key Points:

• Gold price sits at $2,503.72, down 0.18%, while the US dollar approaches its monthly high.
• Market odds for a 50-basis-point Fed rate cut have fallen to 29%, with a 71% chance of a 25-basis-point cut.
• Investors are eyeing key inflation reports this week, particularly the US Consumer Price Index (CPI) and Producer Price Index (PPI), both expected to significantly impact gold prices.

The CPI data, scheduled for release on Wednesday, and the PPI, due Thursday, will likely offer insight into the Fed’s next move.

Lower inflation could bolster the case for a smaller rate cut, while higher-than-expected inflation might push the Fed toward a more hawkish stance, potentially weighing further on gold.

Geopolitical Tensions and Their Impact on Safe-Haven Demand for Gold

While the Fed’s rate decision dominates the immediate outlook for gold, geopolitical tensions are playing a supportive role in maintaining demand for the metal.

The ongoing conflict in Gaza is intensifying, with Israel launching airstrikes on Hamas-controlled areas. Although these developments have had a limited impact on broader markets so far, they contribute to gold’s appeal as a safe-haven asset.

Key Points:

• Geopolitical tensions in Gaza are rising, but their impact on gold remains moderate for now.
• Israel’s recent airstrike in southern Gaza has heightened market uncertainty, adding to gold’s safe-haven appeal.
• Historical trends suggest that during heightened geopolitical conflicts, gold demand increases as investors seek security.

The intensifying violence in the region could push more investors toward gold, particularly if the conflict escalates further. Geopolitical risks typically catalyze price gains in precious metals, as they heighten investor aversion to riskier assets.

Technical Analysis: Key Levels to Watch for Gold

On the technical front, gold is consolidating just below the $2,500 level, with the 50-day Exponential Moving Average (EMA) at $2,502.74 acting as a key support point.

The metal is hovering around its pivot point of $2,500.09, which serves as a critical threshold for determining short-term price action.

Technical Key Points:

• Immediate resistance is seen at $2,511.75, with further resistance at $2,529.29 and $2,540.41.
• Immediate support lies at $2,491.58, with further downside targets at $2,478.37 and $2,466.90.
• The 50-day EMA at $2,502.74 is acting as short-term support, while the 200-day EMA at $2,470.53 provides longer-term structural support.
• RSI is neutral at 51, indicating no strong bias in either direction.

A break above $2,511.75 could trigger a bullish continuation, opening the door for further gains toward the $2,529.29 and $2,540.41 resistance levels.

Conversely, if the price dips below $2,491.58, gold could face additional selling pressure, pushing it toward the $2,478.37 support zone.

Conclusion: Gold’s Outlook Hinges on Fed and Geopolitical Risks

The Fed’s decision on interest rates and upcoming US inflation data are likely to determine gold’s short-term movement.

The broader trend remains cautiously bullish as long as gold holds above its $2,500 pivot point, but risks to the downside are present.

This month is an inflection point for monetary policy, financial markets and gold. In my latest piece, I take a deep dive into the world’s longest-serving, long-term physical value exchange asset.

Here's what’s next for gold in a changing rate cycle: https://t.co/3PLG8ST5pf pic.twitter.com/dOzj33j0qv

— Nomi Prins (@nomiprins) September 9, 2024

Investors should also keep an eye on geopolitical developments, as any escalation could spur further demand for gold as a safe-haven asset. A break below $2,491.58, however, could signal a more bearish trend, paving the way for deeper corrections.