Gold price rises as Fed interest rate cut expectations rise

• Gold prices rise as odds for a 50bps Fed rate cut to 59%, supported by falling US Treasury yields.
• The US dollar index (DXY) is down 0.36% at 100.74, boosting the underperforming metal.
• Traders await Tuesday’s US retail sales and housing data ahead of the Fed’s decision and Jerome Powell’s press conference on Wednesday.

Gold prices gained more than 0.18% during the North American session on Monday, supported by a weaker US dollar as traders eye the US Federal Reserve’s (Fed) monetary policy decision on Wednesday. Expectations for a bigger-than-expected rate cut supported XAU/USD, which is trading at $2,582 after rebounding from a daily low of $2,579.

Market sentiment is mixed ahead of the Fed decision. The data shows that the chances of Jerome Powell and his colleagues offering a 50 basis point (bps) cut are increasing. The CME FedWatch tool shows that the odds of a 50 bps cut have risen from 50% to 59%, while the odds of a 25bps cut are 41%.

Falling US Treasury yields also supported the gold metal. Benchmark US 10-year yields fell two and a half bps to 3.631%, a tailwind for the non-yielding metal.

Consequently, this weighed on the greenback, which according to the US Dollar Index (DXY) fell 0.36% to 100.74.

In the geopolitical space, the risks of an escalation of the conflict in the Middle East remain, while an apparent assassination attempt against former US President Donald Trump has weakened the Green Bill, according to Bloomberg.

Looking ahead, the US economic program will present August retail sales on Tuesday. These are expected to be down from July’s solid results and are expected to guide the size of the Fed’s tapering. In addition, housing data will be released ahead of the Fed’s decision and Chairman Jerome Powell’s press conference later in the week.

Daily Market Reasons: Gold price remains steady above $2,580

• Wall Street economists forecast US retail sales to fall 1% to 0.2% on Monday.
• US industrial production is expected to improve from -0.6% contraction in July to 0%.
• In addition to the Federal Open Market Committee (FOMC) Decision, investors will watch the Summary of Economic Projections (SEP), especially the Dot Plot for forward guidance on interest rates.
• Data from the Chicago Board of Trade suggests the Fed is expected to cut by at least 112 basis points this year, based on December 2024 federal funds rate futures.

XAU/USD Technical Outlook: Gold price headed towards $2,600

Gold’s uptrend remains intact, supported by solid demand and momentum. The Relative Strength Index (RSI) is in bullish territory, remaining just below the 80 level, which traders often consider “extremely” overbought in strong trend conditions.

If XAU/USD breaks the all-time high (ATH) of $2,589, the next stop would be $2,600. If it were to break even higher could be expected, with the psychological levels of $2,650 and $2,700 next.

On the downside, gold sellers need to push prices below $2,550 to regain control. Key support levels thereafter include the August 20 high at $2,531, followed by the critical $2,500 threshold.