Gold price rises on Fed rate cut hopes despite strong US data

• Gold prices are rising despite an upbeat revision to US Q2 GDP and a drop in jobless claims.
• Despite rising US Treasury yields (10-year to 3.86%) and DXY up 0.33% to 101.38, gold’s uptrend continues.
• The focus is shifting to the upcoming core PCE data, which is expected to rise slightly, which could affect the Fed’s decisions.
• The CME FedWatch tool shows a 65.5% probability of a 25bps rate cut in September, supporting gold prices.

Gold prices rose late in the North American session, although the US economy remains resilient after Gross Domestic Product (GDP) figures propelled the greenback higher. Despite this, gold prices continue to rise amid expectations of the Fed’s first interest rate cut. XAU/USD posted gains of 0.78% and traded hands at $2,523.

Market sentiment is positive as traders remain focused on data that could confirm the size of the Federal Reserve’s (Fed) first interest rate cut. Meanwhile, the US Bureau of Economic Analysis revealed that the country grew in Q2 2024 above the preliminary report, raising with it the price index deflator for personal consumption expenditures (PCE).

At the same time, the US Labor Department revealed that fewer Americans than expected filed for unemployment benefits, a relief for the Fed, which acknowledged in Powell’s speech that employment risks are tilted to the upside.

Despite this, the gold metal extended its gains above $2,520, even as the yield on 10-year US Treasuries rose two basis points to 3.86%. Meanwhile, the U.S. dollar index ( DXY ), which tracks the greenback against a basket of six currencies, rose 0.33 percent to 101.38.

Given the backdrop, traders should expect the non-yielding metal to aim lower, but investors see a 65.5% chance of a 25 basis point (bps) rate cut at the September meeting, according to the CME FedWatch tool, which underlies the precious metal.

On Friday, the Fed’s preferred inflation gauge, the core price index for personal consumption expenditures (PCE), is expected to rise by a tenth, according to consensus.

The December 2024 fed funds rate futures contract on the Chicago Board of Trade (CBOT) indicates that investors are eyeing 98 basis points for Fed easing this year, up from 97 months ago.

Daily Market Reasons: Gold Prices Rise as Traders Prepare for US Core PCE Data

• If US economic data continues to be weak, gold’s bullish trend is likely to continue, fueling speculation of a further rate cut by the Fed.
• The second estimate of US GDP for Q2 2024 showed a sharp increase from 1.4% in Q1 to 3%, beating estimates of 2.8%. The Personal Consumption Expenditure (PCE) deflator indicated that inflation eased from 3.1% to 2.5% QoQ, slightly higher than the 2.3% estimate.
• Initial jobless claims for the week ended August 24 fell from 233K to 231K, slightly below the estimate of 232K.
• Next week, the US economic file will present the August Nonfarm Payrolls report, which could be crucial to gauge the size of the Fed’s first interest rate cut at the September meeting.

Technical Outlook: Gold Price Uptrend Extends, Traders Target $2,550

The uptrend in the gold price remains in place on Thursday. As price action moves above $2,520, buyers remain hopeful that XAU/USD could break past the all-time high (ATH) of 2,531. Momentum suggests that buyers are in charge, as shown by the Relative Strength Index (RSI). Given this context, Bullion’s path of least resistance is tilted upwards.

If XAU/USD clears the ATH, the next resistance would be the $2,550 mark. A violation of the latter will expose you to $2,600.

Conversely, if XAU/USD breaks below $2,500, the first support would be the July 17 peak at $2,483. A; once removed, the next support would be the psychological mark of $2,450, followed by the 50-day simple moving average (SMA) at $2,414.