Gold price falls as US inflation prompts small Fed interest rate cut

• Gold pulls back from a daily high of $2,529 after US inflation data boosts chances of a 25 bps Fed rate cut.
• Rising U.S. Treasury yields and a stronger U.S. dollar are weighing on the non-yielding metal, with 10-year T-bills rising to 3.655%.
• The CME FedWatch tool shows a 71% chance of a 25 bps cut.

Gold was down 0.18 percent late in the North American session after hitting a daily high of $2,529. U.S. inflation data prompted traders to cut longs in the non-yielding metal on increasing chances that the Federal Reserve (Fed) will kick off its easing cycle with a 25 basis point interest rate cut base (bps). XAU/USD is trading at $2,511.

Sentiment remains positive after the US Bureau of Labor Statistics released August’s consumer price index (CPI). Monthly headline inflation was unchanged, while monthly core, which excludes food and energy, rose by a tenth.

Market participants pushed US Treasury yields higher on fears that the Fed may be deterred from cutting interest rates by 50 basis points (bps) and instead opt for 25 bps next week.

The US 10-year Treasury rose to 3.655%, up one and a half bps. The greenback was supported after the news, hitting a daily high of 101.82, according to the US Dollar Index (DXY). At the time of writing, DXY is basically unchanged at 101.68.

Investors have cut their odds of a 50 bps Fed rate cut, according to CME’s FedWatch tool. The odds are 29%, while 25 bps is 71%.

The presidential debate between Vice President Kamala Harris and former President Donald Trump was won by Harris, according to a CNN poll.

In the geopolitical space, US Secretary of State Anthony Blinken and David Lammy of the United Kingdom have raised concerns that the US and Britain could give Ukraine the ability to use weapons from Western nations to strike inside Russia.

Daily Market Moves: Gold Price Falls After US CPI Release

• CPI data from the US Bureau of Labor Statistics showed headline inflation for August fell from 2.9% to 2.6% on the year) in line with expectations.
• However, the US core CPI, which excludes volatile items and is considered a more accurate gauge of inflation, was unchanged at 3.2% on the year. On a monthly basis, the core CPI rose from 0.2% to 0.3%, while the overall CPI was 0.2% for the month.
• Data from the Chicago Board of Trade suggests the Fed will now cut at least 98 basis points this year, down from 108 basis points a day ago, according to the December 2024 federal funds rate futures contract.
• Last Friday, Fed officials were dovish. New York Fed President John Williams said cutting rates would help keep the labor market balanced, while Governor Christopher Waller said “the time has come” to ease policy.
• Chicago Fed President Austan Goolsbee was dovish, saying policymakers had an “overwhelming” consensus to lower borrowing costs.
• It’s worth noting that Fed officials entered the lock-in period ahead of the Federal Open Market Committee’s (FOMC) monetary policy meeting.
• Data from the Chicago Board of Trade indicates the Fed is expected to cut by at least 98 bps this year, based on December 2024 federal funds rate futures.

Technical outlook: Gold price holds at $2,500 despite losses

Gold price is down, consolidating in the $2,500-$2,531 area. Even though momentum remains bullish as depicted by the Relative Strength Index (RSI), it is flat above its neutral line, indicating that neither buyers nor sellers are in control.

If XAU/USD breaks the all-time high of $2,531, the next resistance would be the $2,550 mark. With obstacles, the next stop would be the psychological figure of $2,600.

Conversely, if the gold price breaks below $2,500, the next support would be the August 22 low at $2,470. On further weakness, the next area of ​​demand would be the confluence of the May 20 high, which turned into support, and the 50-day simple moving average (SMA) between $2,450 and $2,440.