Gold pulls back from near-record highs as Fed interest rate cut speculation mounts

• Gold slumps after failing to break the $2,531 resistance, closing at $2,493 as speculation of a Fed rate cut intensifies.
• US Nonfarm Payrolls missed estimates, but improved numbers and rising hourly earnings fueled uncertainty about a 25 or 50 bps cut.
• Despite the decline in Treasury yields, the US dollar index returned above 101.00, further pressuring gold prices.

Gold pulled back after failing to test the all-time high of $2,531 and sank more than 0.80% late in the North American session. US economic data cast doubt on whether the Federal Reserve (Fed) will cut interest rates by 50 or 25 basis points (bps) at its September meeting. XAU/USD is trading at $2,493 after hitting a high of $2,529.

The US Bureau of Labor Statistics (BLS) revealed that non-farm payrolls (NFP) in August missed their estimate, but improved from July’s revised downward number. Digging deeper into the report, the Unemployment Rate fell compared to the previous month, while average hourly earnings rose.

According to the data, the Fed interest rate probabilities have fluctuated sharply. Based on CME FedWatch Tool data, at one point traders priced in a 50 bps cut, with the odds rising to as high as 70 percent. However, as the dust settled, market participants estimated that a 25 bps cut was more likely as its odds rose to 73%, while for a 50 bps cut they fell to 27 %.

Meanwhile, the Fed’s policymakers have been going through the news. New York Fed President John Williams said lowering rates soon would help keep the labor market balanced. Fed Governor Christopher Waller echoed some of his comments in a speech at the University of Notre Dame. He said, “The time has come” to start easing policy and revealed he was open to any kind of relaxation.

Recently, Chicago Fed President Austan Goolsbee was dovish, saying policymakers had an “overwhelming” consensus to lower borrowing costs.

With all these developments in mind, gold prices fell despite falling US Treasury yields. Lately, the greenback recovered after slipping below 101.00 and gained over 0.15%, as shown by the US Dollar Index (DXY), which is up at 101.22.

In the geopolitical space, US Secretary of State Antony Blinken said: “90% of the Gaza ceasefire agreement is agreed, but critical issues remain where there are gaps; Both sides must reach yes on the remaining issues,” via Reuters.

Daily market reasons: Gold prices fall as traders ignore mixed US jobs report

• US NFP rose 142,000 in August, missing the forecast of 160,000. In addition, the July figures were revised downwards from 114K to 89K.
• The unemployment rate fell from 4.3% to 4.2%, while average hourly earnings rose from 3.6% to 3.8% on the year in August.
• Data from the Chicago Board of Trade indicated the Fed is expected to cut at least 104 basis points (bps) this year, up from 103 bps a day ago, based on federal funds rate futures from December 2024.

Technical Outlook: Gold price slips below $2,500 on USD strength

Gold prices remain biased, but in the short term appear to have turned negative. After XAU/USD hit a daily high above $2,520, it reversed course and formed a “bearish engulfing” candlestick chart pattern, which opened the door for further losses.

Momentum has turned bearish as depicted by the Relative Strength Index (RSI). The RSI is about to cross below its neutral level.

If XAU/USD breaks below the August 22 low at $2,470, that opens the door for further downside. The next area of ​​demand would be the confluence of the April 12 high, which turned into support, and the 50-day simple moving average (SMA) between $2,435 and $2,431.

On the other hand, if buyers push prices above $2,500, the next resistance would be the all-time high of $2,531. If it were to break, the next stop would be the psychological level of $2,550, followed by the $2,600 threshold.