Gold price bulls remain on the sidelines amid subdued bets for a bigger Fed rate cut

• Gold prices fell following the release of the crucial US CPI report on Wednesday.
• Declining odds of a 50bps rate cut in September lift US bond yields and the USD.
• The prospect of an imminent start to the Fed’s policy easing cycle provides some support.

The price of gold (XAU/USD) fell intraday from near the all-time high on Wednesday after the latest US consumer inflation numbers dented hopes for more interest rate cuts by the Federal Reserve (Fed) in September . Apart from this, risk-on momentum further undermined the safe-haven precious metal, which settled into the red for the first time in three days. That said, the prospect of an imminent start to the Fed policy easing cycle helped the non-yielding yellow metal find some support and break away from the psychological $2,500 threshold.

Furthermore, investors expect the US central bank to cut interest rates by 25 basis points (bps) at each of the three remaining policy meetings in 2024. This, in turn, acts as a tailwind for the price gold during the Asian session on Thursday. However, the upside remains capped amid emerging US dollar (USD) buying, supported by a rise in US Treasury yields. Additionally, XAU/USD remains capped in a multi-week-old trading range, warranting some caution for aggressive traders and positioning for firm near-term direction.

Daily Digest Market Movers: Gold price struggles to gain traction as traders cut bets on aggressive Fed policy easing

• The price of gold fell on Wednesday after the crucial US Consumer Price Index (CPI) report forced investors to lower their expectations of a further 50 basis point interest rate cut by the Federal Reserve next week.
• The US Bureau of Labor Statistics reported that the overall CPI rose 0.2% in August, and the annual rate decelerated more than expected, from 2.9% to 2.5%, marking the slowest small increase from February 2021.
• Meanwhile, core CPI, which excludes volatile food and energy prices, rose 0.3% during the reported month and rose 3.2% in the 12 months to August, matching July’s rise and market expectations .
• According to CME Group’s FedWatch tool, markets are currently pricing in an 87% chance of a 25bps rate cut at the next FOMC policy meeting on September 17-18, compared to 71% ahead of the US CPI data.
• Diminishing chances for more aggressive policy easing by the US central bank are pushing US Treasury yields and the US dollar higher, which in turn is likely to act as a headwind for the low-yielding yellow metal.
• Traders are now looking forward to the release of the US producer price index (PPI) for some impetus, although market reaction is likely to be limited amid the prospect of an imminent start to the Fed’s rate-cutting cycle.

Technical Outlook: Gold Price Extends Price Consolidation Move and Remains Limited in Multi-Week Range

From a technical perspective, the recent price action within the range is forming a rectangle on the short-term charts and could still be categorized as a bullish consolidation phase on the back of a rally from the June low. Additionally, mixed oscillators on the daily chart make it prudent to wait for a breakout in the short-term range before placing new directional bets. Meanwhile, any further move higher could continue to face some resistance near the $2,530-2,532 region or the all-time high reached in August. Some subsequent buying will be seen as a new trigger for bullish traders and pave the way for a resumption of the previously well-established uptrend.

On the other hand, weakness below $2,500 is likely to find support near the $2,485 region ahead of the $2,470 horizontal area. The latter coincides with the lower end of the aforementioned trading range and should act as a strong base for the price of gold. A convincing break below could trigger aggressive technical selling and pull XAU/USD to the 50-day simple moving average (SMA), currently pinned near the $2,453-2,452 region. The corrective decline could extend further towards testing the levels below $2,400 or the 100-day SMA support.