Gold price drops as US inflation data raises likelihood of Fed rate cut
Gold retreated from a daily high of $2,529 as US inflation data increased the chances of a 25 bps Fed rate cut. Rising US Treasury yields and a stronger US Dollar weighed on the non-yielding metal, with the 10-year T-note climbing to 3.655%. The XAU/USD trades at $2,511.
Positive sentiment remains after the US Bureau of Labor Statistics released August’s Consumer Price Index (CPI). While monthly headline inflation remained steady, the monthly core CPI, excluding food and energy, saw a slight increase.
Market participants pushed US Treasury yields higher amid fears that the Fed may opt for a 25 bps rate cut instead of 50 bps next week. The US 10-year Treasury rose to 3.655%, while the US Dollar Index (DXY) hit a daily high of 101.82.
Investors adjusted their odds for a 50 bps rate cut, with a 71% chance of a 25 bps cut according to the CME FedWatch Tool. In other news, the Presidential debate favored Vice President Kamala Harris over former President Donald Trump.
Geopolitically, concerns were raised as US Secretary of State Anthony Blinken and the UK’s David Lammy discussed the possibility of granting Ukraine the ability to use weapons from Western nations against Russia.
Market analysis: Gold price movements following US CPI release
- US Bureau of Labor Statistics’ CPI data showed a decrease in headline inflation for August and stable core CPI.
- Expectations for a 98 basis point rate cut by the Fed have increased, with dovish comments from Fed officials.
- Fed officials are in a blackout period ahead of the FOMC meeting, where monetary policy decisions will be made.
Technical outlook: Gold price levels and resistance points
Gold price remains flat around $2,500, with resistance at $2,531 and potential support at $2,470. Momentum is bullish, but buyers and sellers are evenly matched.
If XAU/USD surpasses $2,531, the next resistance levels are $2,550 and $2,600. On the downside, support lies at $2,470 and $2,440.
Understanding the impact of Fed policy on financial markets
The Federal Reserve’s decisions on interest rates and monetary policy can significantly influence market movements, including the price of gold. As the Fed considers rate cuts, investors adjust their strategies, leading to fluctuations in various asset classes. Understanding these dynamics can help individuals make informed decisions about their investments and financial planning.