Gold price tops $2,500 as traders increase bets on Fed rate cuts

• Gold surges above $2,500, hitting a peak of $2,523 before taking profit ahead of key US economic data.
• Traders are pricing in more than 104 bps of Fed easing, expecting rate cuts to keep the labor market stable.
• Falling US Treasury yields and a weaker US dollar continue to support gold prices.

Gold prices rose sharply during the North American session, above the $2,500 mark on Thursday, but remained shy of the daily peak of $2,523 as traders took profits ahead of key United States (US) data. At the time of writing, XAU/USD is trading at $2,516, gaining over 0.80%.

Earlier in the morning, US jobs data showed mixed readings, although they confirmed that the labor market is cooling, fueling speculation of a 50 basis point (bps) interest rate cut by the Federal Reserve (Fed) in two weeks. On the other hand, the economy remains resilient as business activity in the services segment improved against forecasts of a slowdown.

However, gold traders lifted the yellow metal above $2,500 as it priced in more than 104 bps of Fed easing on the December 2024 Chicago Board of Trade (CBOT) fed funds futures contract.

What is almost certain is that the Fed can lower borrowing costs, according to San Francisco Fed President Mary Daly. She commented that the Fed needs to cut rates to keep the labor market healthy.

U.S. Treasury yields fell after data on the 10-year Treasury note fell three basis points to 3.727 percent, undermining the greenback. The U.S. dollar index ( DXY ), a measure of the greenback’s value against six other currencies, fell 0.21 percent to 101.05.

Meanwhile, gold traders are gearing up for the release of the August Nonfarm Payrolls (NFP) report.

Daily market reasons: Gold price rises ahead of US NFP data

• ADP National Employment Change figures showed that private companies hired fewer people than expected, adding just 99,000 in August, well below the forecast and downwardly revised figure of 145,000 in July.
• Initial jobless claims for the week ended August 31 came in at 227K, below the 230K projected and the previous 232K.
• The ISM Services Purchasing Managers Index (PMI), a measure of business activity, improved. The index reached 51.5 from 51.4 in July and above the 51.1 projected by the consensus.
• August NFP figures are expected to rise from 114K to 163K, while the unemployment rate could fall to a consensus estimate of 4.3% to 4.2%.

Technical outlook: Gold price buyers recover $2,500

Gold prices rose to new two-week highs above $2,500 ahead of the NFP report. Price action shows that buyers are gaining momentum, as evidenced by the Relative Strength Index (RSI), targeting bullish territory.

That said, the XAU/USD path of least resistance is tilted to the upside and could challenge the yearly (YTD) high at $2,531. If it were to break, the next stop would be the psychological $2,550, followed by the $2,600 threshold.

Conversely, if XAU/USD breaks below $2,500, the next support would be the August 22 low at $2,470. Once released, the next area of ​​demand would be the confluence of the April 12 high, which turned support, and the 50-day simple moving average (SMA) at $2,435-$2,431.