Gold Prices Surge as Odds for 50 bps Fed Rate Cut Increase

  • Market Update: Gold prices rise as odds for a 50 bps Fed rate cut increase to 59%, supported by falling US Treasury yields.
  • US Dollar Index (DXY): Drops 0.36% to 100.74, boosting the non-yielding metal.
  • Upcoming Events: Traders await US Retail Sales on Tuesday and housing data ahead of Fed decision and Jerome Powell’s press conference on Wednesday.

Gold price saw a significant increase during the North American session on Monday, driven by a weaker US Dollar and anticipation surrounding the upcoming US Federal Reserve (Fed) monetary policy decision. Currently, XAU/USD trades at $2,582 after bouncing off a daily low of $2,579, marking a gain of over 0.18%.

Market Sentiment and Expectations

As the Fed’s decision approaches, market sentiment is mixed with growing expectations for a larger-than-expected rate cut. The CME FedWatch Tool shows that odds for a 50 bps cut have risen to 59%, while a 25 bps cut stands at 41%. Additionally, the drop in US Treasury yields has provided further support to the price of gold.

The weakening US Dollar, as indicated by the US Dollar Index (DXY) falling 0.36% to 100.74, has also contributed to the uptrend in gold prices.

Geopolitical Factors and Economic Data

Geopolitical risks, including the potential escalation of the Middle East conflict and recent events involving former US President Donald Trump, have added to the uncertainty in the market.

Looking ahead, the US economic calendar includes the release of August Retail Sales on Tuesday, which are expected to guide the size of the Fed’s cut. Housing data will also be released before the Fed’s decision and Chair Jerome Powell’s press conference later in the week.

Market Movers and Projections

  • Wall Street economists anticipate a decline in US Retail Sales from 1% to 0.2% MoM.
  • US Industrial Production is expected to improve from July’s -0.6% contraction to 0%.
  • Investors will closely monitor the Federal Open Market Committee Decision (FOMC) and the Summary of Economic Projections (SEP) for forward guidance on interest rates.
  • Based on data from the Chicago Board of Trade, the Fed is expected to cut at least 112 basis points this year, according to the fed funds rate futures contract for December 2024.

Technical Analysis: Gold Price Outlook

Gold’s uptrend remains strong, supported by solid demand and momentum. The Relative Strength Index (RSI) indicates bullish conditions, with the potential for further upside towards $2,600 and beyond if key resistance levels are breached.

On the downside, a break below $2,550 could signal a shift in momentum, with key support levels at $2,531 and $2,500.

Gold FAQs

  • Role of Gold: Gold has historically been used as a store of value and a safe-haven asset during turbulent times.
  • Central Bank Holdings: Central banks hold significant gold reserves to support their currencies and improve economic stability.
  • Correlation with USD and Treasuries: Gold has an inverse relationship with the US Dollar and US Treasuries, making it a popular diversification asset.
  • Price Influencers: Various factors, including geopolitical instability and interest rates, can impact the price of gold.
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