Gold price (XAU/USD) is trading around $2,500 in Monday’s early Asian session, facing pressure from the stronger US Dollar (USD). Despite this, the downside for gold may be limited as the possibility of a September interest rate cut by the US Federal Reserve (Fed) remains on the table.
The latest data from the Commerce Department showed that the US Core PCE inflation remained steady at 2.6% in July, matching the previous month’s increase and falling below the consensus of 2.7%. This indicates that inflation is no longer the Fed’s main concern, with a shift towards focusing on unemployment data, supporting the case for potential rate cuts next month.
Traders have increased their bets on a 25 basis points rate cut by the Fed in September to around 70%, with a 30% chance of a 50 bps reduction, according to the CME FedWatch tool. Lower interest rates are expected to boost the gold price in the near term, as they reduce the opportunity cost of holding non-yielding assets like gold.
Investors are also keeping an eye on the situation in the Middle East, where Israel’s largest labor group is planning a nationwide strike to push for a Gaza cease-fire. Any signs of escalating tensions could increase safe-haven demand and benefit the gold price.
However, concerns about physical gold demand and China’s sluggish economy may limit the upside for the precious metal. China, the world’s top buyer of gold, is set to release its Caixin Manufacturing PMI for August, with expectations for an improvement to 50.0 from the previous 49.8. A weaker-than-expected outcome could weigh on the XAU/USD price.
Analysis:
Gold prices are currently under pressure from a stronger US Dollar but are supported by expectations of a Fed rate cut in September. Geopolitical tensions in the Middle East could boost safe-haven demand for gold, while concerns about Chinese economic growth may limit the upside. Investors should keep an eye on upcoming data releases and geopolitical developments to gauge the direction of the gold price in the near term.