Gold climbs ahead of US inflation data as traders eye Fed rate cut

• Gold gains ground despite strong US dollar strength as traders focus on the upcoming release of the US Consumer Price Index (CPI).
• The CME FedWatch tool shows a 73% chance of a 25 bps Fed rate cut, down from earlier speculation of a 50 bps move.
• US Treasury yields remain flat as traders await further clues on inflation trends and the path of Fed rates.

Gold gained ground on Monday as traders braced for the release of the August United States (US) inflation report and looked for signs that the Federal Reserve (Fed) would cut rates by 50 or 25 basis points. At the time of writing, XAU/USD is trading at $2,502, up 0.23%.

Market sentiment improved during the overnight session for North American traders, as evidenced by solid gains in US stocks. U.S. Treasury yields retreated somewhat along the short and long ends of the curve, with the 10-year T note at 3.706% unchanged from last Friday’s close.

Bullion traders shrugged off overall US dollar strength as the greenback posted gains of more than 0.30%, according to the US Dollar Index (DXY), which measures the greenback’s performance against six currencies.

Meanwhile, traders discounted the odds of a 50bps rate cut following last Friday’s non-farm payrolls (NFP) figures, which despite missing the mark, showed the jobless rate fell from 4 .3% to 4.2%. Now, eyes are on the release of the consumer price index (CPI), which is expected to fall further towards the Fed’s 2% target.

The CME FedWatch tool shows that the odds of a 25 bps Fed rate cut have risen to 73%, while the odds of 50 bps are 27%.

Sources quoted by Reuters noted: “The market seems to be reconciling that the Fed is likely to cut less than 25 basis points, and that has been my position all along.”

Earlier, the US economic file presented the New York Fed’s inflation expectations report, which showed prices remained anchored at the 3% mark, unchanged from the previous survey, though slightly above the Fed’s target.

Daily Market Moves: Gold price rises as traders track US CPI

• US CPI is expected to fall from 2.9% to 2.6% year-on-year in August, while core CPI is expected to remain at 3.2%.
• Last week’s NFP report revealed the economy added more than 142,000 workers to the labor force, but missed the consensus of 160,000. However, the drop in the unemployment rate provided a lifeline for the Greenback.
• Last Friday, Fed officials were dovish. New York Fed President John Williams said cutting rates would help keep the labor market balanced, while Governor Christopher Waller said “the time has come” to ease policy.
• Chicago Fed President Austan Goolsbee was dovish, saying policymakers had an “overwhelming” consensus to lower borrowing costs.
• It’s worth noting that Fed officials entered the lockout period ahead of the Federal Open Market Committee’s (FOMC) monetary policy meeting.
• Data from the Chicago Board of Trade (CBOT) indicates the Fed will cut by at least 104.5 basis points (bps) this year based on the December 2024 federal funds rate futures contract.
• China’s central bank suspends gold purchases for a fourth month in August.

Technical outlook: Gold price buyers recover $2,500

Gold prices have resumed their uptrend above $2,500, although buyers seem unable to surge below $2,510.

Momentum remains bullish, but the yellow metal could consolidate in the short-term before resuming its uptrend or going lower. The Relative Strength Index (RSI) is almost flat, suggesting that neither buyers nor sellers are in charge.

If XAU/USD climbs above the year-to-date high of $2,531, it could sponsor an advance to challenge $2,550. If it were to break through, the next stop would be the psychological $2,600 level.

On the other hand, if gold prices fall below $2,500, the next support would be the August 22 low at $2,470. If broken, the next area of ​​demand would be the confluence of the May 20 high, which turned into support, and the 50-day Simple Moving Average (SMA) between $2,450 and $2,440.