XAU/USD Holds Above $2,500 Amid Persistent Geopolitical Risks, Fed Rate Cut Hopes

• The price of gold rises to $2,505 in the first Asian session on Monday.
• Recent US housing starts have added to concerns about the strength of the economy and fueled expectations of a Fed rate cut.
• Rising geopolitical tensions boost safe-haven assets such as gold.

The price of gold (XAU/USD) is gaining momentum around $2,505 during the early Asian session on Monday amid hopes of a US Federal Reserve (Fed) interest rate cut in September. Gold traders will take more cues from the first reading of the US S&P Global Purchasing Managers’ Index (PMI) and Fed Chairman Jerome Powell’s speech this week.

The precious metal hit an all-time high on Friday as investors placed more bets on interest rate cuts from the US Fed in September. U.S. economic data last week showed retail sales beat estimates, but U.S. producer and consumer price indices indicated inflation was easing.

Additionally, US housing starts fell 6.8% in July to 1.238 million units, from a 1.1% rise in June, the slowest level since 2020. The figure added to concerns about to the strength of the economy, especially after the recent lower inflation and labor reports. This in turn fuels deeper Fed cuts and supports the yellow metal as lower interest rates generally reduce the opportunity cost of holding non-yielding bullion.

Federal Reserve Bank of Chicago President Austan Goolsbee said Sunday that the U.S. economy shows no signs of overheating, so Fed policymakers should be cautious about keeping policy tight longer than necessary. Markets are now pricing in a nearly 76 percent chance of a 25 basis point (bps) Fed rate cut at its September meeting, according to CME’s FedWatch tool.

Geopolitical tensions unfolding in the Middle East and the war in Ukraine are all contributing to the demand for safe gold. The conflict between Hezbollah and Israel escalated over the weekend despite diplomatic attempts to reduce tensions to prevent an expected Hezbollah-Iran strike on Israel, according to The Guardian. The news agency reported that an Israeli attack on Saturday was one of the bloodiest for civilians since fighting began in October.