Gold prices have been on the rise as expectations for a 50 bps Fed rate cut increase to 59%, supported by falling US Treasury yields. The US Dollar Index (DXY) dropped 0.36% to 100.74, boosting the non-yielding metal. Traders are eagerly awaiting the US Retail Sales data on Tuesday and housing data ahead of the Fed decision and Jerome Powell’s upcoming press conference on Wednesday.
During Monday’s North American session, gold prices gained over 0.18% fueled by a weaker US Dollar as market participants focus on the upcoming US Federal Reserve (Fed) monetary policy decision. The XAU/USD is currently trading at $2,582 after rebounding from a daily low of $2,579.
There is a mixed sentiment leading up to the Fed’s decision, with data showing that the likelihood of a 50-basis-point cut is growing. As per the CME FedWatch Tool, the odds for a 50 bps cut have risen from 50% to 59%, while a 25 bps cut stands at 41%. The decline in US Treasury yields has also supported the uptrend in gold prices. The US 10-year benchmark T-note is down two and a half bps to 3.631%, providing a tailwind for the non-yielding metal.
As a result, the US Dollar, portrayed by the US Dollar Index (DXY), fell by 0.36% to 100.74. Geopolitical tensions in the Middle East and reports of an apparent assassination attempt against former US President Donald Trump are factors contributing to the weakness in the currency, as reported by Bloomberg.
Looking ahead, the US economic calendar will feature August Retail Sales data on Tuesday, which are expected to influence the size of the Fed’s cut. Additionally, housing data will be released before the Fed’s decision and Chair Jerome Powell’s press conference later in the week.
Wall Street economists are anticipating a decline in US Retail Sales from 1% to 0.2% MoM, while US Industrial Production is expected to improve from July’s -0.6% contraction to 0%. The Summary of Economic Projections (SEP) and the Dot Plot, which provide forward guidance on interest rates, will also be closely monitored by investors alongside the FOMC decision. Data from the Chicago Board of Trade suggests that the Fed is expected to cut at least 112 basis points this year based on the fed funds rate futures contract for December 2024.
From a technical standpoint, the XAU/USD remains on an uptrend and is poised to reach $2,600 with key psychological levels at $2,650 and $2,700. On the downside, a break below $2,550 could signal a bearish reversal with key support levels at $2,531 and $2,500 in focus.
Gold has been an integral part of human history, serving as a store of value and medium of exchange. It is widely considered a safe-haven asset, offering protection during uncertain times. Central banks hold significant amounts of Gold to bolster their reserves and improve their perceived economic strength. In 2022, central banks added 1,136 tonnes of Gold to their reserves, the highest yearly purchase on record.
The price of Gold is influenced by various factors, including geopolitical instability, economic recessions, interest rates, and the performance of the US Dollar. Gold has an inverse relationship with the Dollar and US Treasuries, making it an attractive asset during times of Dollar depreciation. As a yield-less asset, Gold tends to rise when interest rates are low and fall when rates are high. Overall, the price of Gold largely depends on how the US Dollar behaves since it is priced in dollars.
