Gold price slips below $2,500 after US PCE data

• Gold falls below $2,500 following the US PCE report, increasing the likelihood of a Fed rate cut in September.
• Fed’s cautious policy easing strategy stirs uncertainty; markets favor a 25 bps cut.
• Traders’ bets on a 25 bps rate cut rise to 69%; the odds for a 50 bps cut fall to 31 percent, according to the CME FedWatch tool.

Gold prices fell 0.90% on Friday, below the $2,500 mark for the second day of the week, after a report from the US Commerce Department showed that inflation continued to ease, according to the main price index for consumer spending. consumption (PCE) from July. At the time of writing, XAU/USD is trading at $2,497 after hitting a high of $2,526.

Data from the US Bureau of Economic Analysis (BEA) showed that the Federal Reserve’s (Fed) favorite gauge of inflation, core PCE, was slightly below estimates, though in line with the June report. The data supports the Fed’s intentions to start easing monetary policy immediately after the next meeting in September, although the uncertainty lies in the size of the first interest rate cut.

Even though Fed policymakers have adopted a “gradualist” stance, investors are speculating that they could cut as much as 50 basis points (bps), according to CME FedWatch Tool data. However, next Friday’s US non-farm payrolls report will be crucial after Fed Chairman Jerome Powell’s statement that employment risks are tilted to the upside.

After the US PCE report, traders raised bets on a 25bps cut by the Fed at the September meeting, with odds at 69%, while odds of a 50bps cut fell to 31%.

Bullion prices are on track for a 2% gain in August after gold hit an all-time high of $2,531 on August 20.

Ahead of next week, the US economic record will be busy with the release of the ISM Manufacturing and Services PMI, jobs data and the trade balance.

Daily Market Reasons: Gold Price Pulls Back as Traders Cut Chances of 50bps Rate Cut

• The December 2024 Chicago Board of Trade (CBOT) fed funds rate futures contract indicates that investors are eyeing 97 basis points for Fed easing this year.
• The US core PCE reading for July showed prices rose 2.6% YoY, unchanged from the previous month, but slightly below the estimate of 2.7% YoY. Core PCE came in at 2.5% YoY, underperforming the 2.6% growth forecast.
• Consumer spending rose while income growth was sluggish, raising concerns about whether Americans can maintain their current spending pace.
• According to the University of Michigan (UoM), US Consumer Sentiment rose from 66.4 in July to 67.9 in August.
• One-year inflation expectations fell from 2.9% to 2.8%, while medium-term expectations – over five years – remained flat at 3%.

Technical outlook: Gold price rally stalls, pulls back below $2,500

The price of gold remains bullish despite breaking below $2,500, but a “bear swallow” chart pattern is looming. The Relative Strength Index (RSI) shows that the sellers are in charge in the near term despite showing mixed readings as the RSI is falling but in bullish territory.

If XAU/USD reaches a daily close below $2,500, the next support would be the August 22 low at $2,470. Once broken, the next stop would be the confluence of the August 15 low and the 50-day simple moving average (SMA) at $2,431.

Conversely, if XAU/USD stays above $2,500, the next resistance would be the ATH, and the next resistance would be the $2,550 mark. A violation of the latter will expose you to $2,600.