XAU/USD slips to near $2,500 on a firmer US dollar

• The price of gold is trading in negative territory around $2,500 in the first Asian session on Monday.
• US Core PCE inflation was unchanged at 2.6%, equal to June’s increase, below consensus of 2.7%.
• Any sign of a sluggish Chinese economy could weigh on gold prices.

The price of gold (XAU/USD) is falling near $2,500 in early Asian trading on Monday, under pressure from a stronger US dollar (USD). However, downside for the yellow metal could be limited as a September interest rate cut by the US Federal Reserve (Fed) remains in play.

The Commerce Department revealed on Friday that the US Personal Consumption Expenditure (PCE) Price Index rose 0.2% on the month in July, in line with market expectations. On an annual basis, PCE inflation was unchanged at 2.5% in July. Meanwhile, core PCE, which excludes volatile food and energy prices, rose 0.2 percent for the month, but was up 2.6 percent from a year ago. The annual figure was slightly weaker than the expected 2.7%.

Alex Ebkarian, chief operating officer at Allegiance Gold, said the PCE report confirmed that inflation is no longer the Fed’s main concern as they shifted their focus to unemployment data, which further validates potential rate cuts in September .

Traders slightly increased bets on a 25 basis point (bps) rate cut by the Fed in September to around 70%, with a 50bps cut possibility at 30% following the PCE inflation report , according to the CME FedWatch tool. Firmer Fed rate cut expectations are likely to support gold prices in the short term as lower interest rates reduce the opportunity cost of holding gold without yield.

Israel’s largest labor group is planning a nationwide strike on Monday, its strongest push yet to force the government to call for a ceasefire in Gaza and secure the release of hostages held by Hamas, according to Bloomberg. Investors will closely monitor developments surrounding the conflicts in the Middle East. Any sign of escalating tensions in the region could boost asylum demand, benefiting gold prices.

However, concerns about physical demand for gold and China’s sluggish economy could limit the precious metal’s upside, as China is the world’s largest buyer of gold. China’s Caixin Manufacturing PMI for August is due on Monday and is expected to improve to 50.0 from 49.8 previously. The weaker-than-expected result could hurt the XAU/USD price.