The price of gold is falling in a familiar range amid subsequent USD buying

• Gold prices fall as the USD benefits from reduced expectations of a 50 basis point Fed rate cut.
• The downside remains limited as traders look for fresh impetus in US inflation numbers.
• The technical setup supports the prospects for a breakout through a short-term trading range.

The price of gold (XAU/USD) is struggling to take advantage of the previous day’s rally against the $2,485 region and is falling during the Asian session on Tuesday amid some strength in the US dollar (USD). Investors trimmed their bets on a bigger interest rate cut by the Federal Reserve (Fed) in September after the release of the mixed monthly US jobs report on Friday. That, in turn, lifts the USD index (DXY), which tracks the greenback against a basket of currencies, back closer to the monthly peak reached last week and acts as a headwind for the unyielding yellow metal.

Apart from this, a generally positive tone around equity markets is seen as another factor undermining demand for gold prices. XAU/USD, however, remains locked in a multi-week-old trading range as investors await more clues on the size of the Fed’s interest rate cut later this month. Market focus will therefore remain glued to the release of the latest US consumer inflation figures on Wednesday. Meanwhile, the prospect of an imminent start to the Fed’s rate-cutting cycle could prevent traders from placing aggressive bear bets around the metal.

Daily Digest Market Movers: Gold price undercut by modest USD strength, risk positive tone

• Mixed US employment data on Friday reduced the likelihood of a 50 basis point rate cut by the Federal Reserve and continues to benefit the US dollar, acting as a headwind for gold prices.
• According to CME Group’s FedWatch tool, traders see a 71% chance of a 25 basis point rate cut at the next FOMC meeting on September 17-18 and a 29% chance of a 50 basis point cut.
• Investors are opting to wait for Wednesday’s release of US consumer price data for August, which, along with Thursday’s Producer Price Index, could influence expectations for a Fed rate cut.
• New York Fed President John Williams said on Friday that inflation expectations remain well anchored and that monetary policy may be moved to a more neutral stance depending on the data.
• Separately, Fed Governor Christopher Waller noted that maintaining the economy’s forward pace means the time has come to start cutting rates and that he is open-minded about size.
• Adding to that, Chicago Fed President Austan Goolsbee said officials are finally starting to catch up with the broader market’s view that the time has come for a move on monetary policy rates.
• This suggests that the path of least resistance for non-yielding XAU/USD remains to the upside, and the market’s immediate reaction to stronger US inflation numbers is more likely to be limited.

Technical Outlook: Gold Price Extends Its Price Consolidation Movement Around the $2,500 Psychological Level

From a technical perspective, the range-bound price action seen over the past three weeks constitutes the formation of a rectangle on the daily chart. Against the background of the recent rally to the all-time high, this could still be categorized as a bullish consolidation phase. Furthermore, the oscillators on the daily chart remain in positive territory, validating the short-term positive outlook for the gold price. That said, it will still be prudent to wait for a breakout supported by the trading range resistance or the historical high around the $2,530-2,532 region before positioning for any further appreciative moves.

On the other hand, any significant slide is likely to find support near the $2,485 area ahead of the horizontal $2,470 area. The latter is the lower bound of the aforementioned trading range, which, if decisively broken, could trigger some technical selling and pave the way for deeper losses. The price of gold could then accelerate the decline towards the 50-day Simple Moving Average (SMA) support, currently pegged near the $2,446 area, before eventually falling to the $2,410-$2,400 region.