Gold prices saw a slight decline after hitting a daily high of $2,529 following US inflation data that increased the likelihood of a 25 basis points Fed rate cut. This decline was driven by rising US Treasury yields and a stronger US Dollar, with the 10-year T-note climbing to 3.655%. The CME FedWatch Tool indicates a 71% chance of a 25 bps cut. The XAU/USD pair was trading at $2,511 at the time of the decline.
The positive sentiment in the market continued after the US Bureau of Labor Statistics released August’s Consumer Price Index (CPI). While monthly headline inflation remained unchanged, the monthly core CPI, which excludes food and energy, ticked up slightly. This prompted market participants to push US Treasury yields higher amid concerns that the Fed may opt for a 25 bps rate cut instead of 50 bps next week.
The US Dollar was bolstered by the news, reaching a daily high of 101.82 on the US Dollar Index (DXY). Investors adjusted their odds for a 50 bps Fed rate cut, with a 29% chance now, while the probability of a 25 bps cut remained at 71%. In the geopolitical sphere, concerns were raised about the US and UK potentially granting Ukraine the ability to use Western weapons to strike inside Russia.
On the technical side, Gold prices remained subdued but consolidated within the $2,500 to $2,531 range. The Relative Strength Index (RSI) showed bullish momentum, but was flat above its neutral line, indicating a lack of control from either buyers or sellers. Resistance levels were identified at $2,550 and $2,600, while support levels were at $2,500 and $2,470.
Gold has historically been a key player in human history, acting as a store of value and medium of exchange. It is now widely regarded as a safe-haven asset, serving as a hedge against inflation and depreciating currencies. Central banks are the largest holders of Gold, using it to diversify their reserves and instill trust in the economy and currency. In 2022, central banks added a record 1,136 tonnes of Gold worth around $70 billion to their reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, serving as a diversification tool for investors and central banks during turbulent times. movements in Gold prices are influenced by various factors such as geopolitical instability, economic recession fears, interest rates, and the strength of the US Dollar. With Gold priced in dollars, the performance of the USD has a significant impact on Gold prices, with a strong Dollar keeping prices in check and a weaker Dollar driving prices up.
