Gold price rises on Fed dovishness

• Gold rises on risk, shrugging off robust US data, while US dollar hits 12-month low.
• Powell’s dovish comments keep U.S. Treasury yields steady, weighing on the U.S. dollar and boosting gold.
• Focus shifts to upcoming core PCE and jobs data, crucial to Fed decisions; interest rate cut prospects support gold.

Gold prices rose firmly during the North American session on Tuesday amid a risk-on environment and steady US Treasury yields. Investors ignored better-than-expected economic data from the United States (US), failing to support the already ragged greenback. XAU/USD is trading at $2,524 and gaining over 0.20%.

The narrative in financial markets has remained unchanged since Federal Reserve (Fed) Chairman Jerome Powell announced last Friday that the time has come to cut interest rates. That sent U.S. Treasury yields down and the U.S. dollar to a new 12-month low, levels last seen in July 2023, according to the U.S. Dollar Index (DXY).

The DXY is at 100.55, down 0.31%, while the benchmark US 10-year note yields 3.829%, basically unchanged.

American consumers became slightly optimistic in August, according to a survey conducted by the US Conference Board (CB). However, traders remain focused on Friday’s release of the core price index for personal consumption expenditures (PCE), the Fed’s preferred gauge of inflation, along with labor market data with the initial jobless claims report due on August 29.

This could be a prelude to the upcoming nonfarm payrolls report due to the Fed’s pivot to labor market concerns. The labor market remains healthy if the number of Americans filing jobless claims is lower than estimated. Otherwise, the US dollar could weaken further, creating a tailwind for gold prices.

The December 2024 fed funds rate futures contract in Chicago suggests investors are eyeing 100 basis points of Fed easing this year, up from 97 months ago. That implies traders are expecting a 50bps rate cut at the September meeting, however the odds of a rate cut of that size are 34.5%, according to the CME FedWatch tool.

Bullion prices have received a lifeline due to rising tensions in the Middle East. The Israel-Hezbollah conflict escalated over the weekend, and fears that the conflict could widen would be positive for the gold metal.

Daily market reasons: Gold price rises, ignoring consumer confidence data

• If US economic data continues to be weak, gold’s bullish trend is likely to persist, fueling speculation of a further rate cut by the Fed.
• The US Conference Board revealed that consumer confidence for August was 103.3, up from an upwardly revised 101.9 in July and beating estimates of 100.7.
• Gross Domestic Product (GDP) figures for Q2 in the second estimate are expected to improve from 1.4% to 2.8%.
• On Friday, the Fed’s favorite inflation gauge, the core price index for personal consumption expenditures (PCE), will be released. It is expected to grow from 2.6% to 2.7% YoY.

Technical outlook: Gold’s uptrend intact as buyers target $2,550

The price of gold remains bullish, although price action over the past two days shows that traders are reluctant to position ahead of the PCE data release.

On the momentum side, the Relative Strength Index (RSI) is failing to make its last high, unlike the XAU/USD price action, which means a negative divergence could occur.

If XAU/USD slips below the current week’s lows of $2,503 and $2,500, this would pave the way for a deeper pullback. The next support would be the July 17 high at $2,483, followed by the psychological $2,450 mark. Another downside is seen at the 50-day simple moving average (SMA) at $2,410, ahead of $2,400.

On the other hand, if bullion prices break the all-time high (ATH) of $2,531, this could sponsor an advance of $2,550 before challenging $2,600.