- Gold price drifted lower following the release of the crucial US CPI report on Wednesday.
- Diminishing odds for a 50-bps rate cut in September lifts the US bond yields and the USD.
- The prospects for an imminent start of the Fed’s policy-easing cycle offer some support.
Gold price (XAU/USD) builds on the overnight rebound from the $2,500 psychological mark and gains some positive traction on Thursday. Growing acceptance that the Federal Reserve (Fed) will begin its policy-easing cycle and lower borrowing costs next week turns out to be a key factor acting as a tailwind for the non-yielding yellow metal. That said, reduced bets for a larger Fed rate-cut move at the end of the September 17-18 policy meeting lift the US Dollar (USD) back closer to the monthly peak and should cap gains for the commodity.
Apart from this, a generally positive tone around the equity markets is likely to undermine traditional safe-haven assets and hold back traders from placing aggressive bullish bets around the Gold price. Furthermore, the recent range-bound price action and repeated failures to find acceptance above the $2,530-2,532 region or the all-time peak touched in August, make it prudent to wait for strong follow-through buying before positioning for additional gains. Traders now look forward to the US Producer Price Index (PPI) for a fresh impetus.
Daily Digest Market Movers: Gold price might struggle to build on gains amid modest USD strength, positive risk tone
- Gold price fell on Wednesday after the crucial US Consumer Price Index (CPI) report forced investors to scale back their expectations of a larger, 50-basis-points interest rate cut by the Federal Reserve next week.
- The US Bureau of Labor Statistics reported that the headline CPI rose 0.2% in August and the yearly rate decelerated more than anticipated, from 2.9% to 2.5%, marking the smallest increase since February 2021.
- Meanwhile, the core CPI, which excludes volatile food and energy prices, was up 0.3% during the reported month and rose 3.2% in the 12 months through August, matching July’s increase and market expectations.
- According to the CME Group’s FedWatch tool, the markets are currently pricing in an 87% chance of a 25 bps rate cut at the next FOMC policy meeting on September 17-18 as compared to 71% before the US CPI data.
- Diminishing odds for a more aggressive policy easing by the US central bank push the US Treasury bond yields and the US Dollar higher, which, in turn, is likely to act as a headwind for the non-yielding yellow metal.
- Traders now look forward to the release of the US Producer Price Index (PPI) for some impetus, though the market reaction is likely to be limited amid the prospects for an imminent start of the Fed’s rate-cutting cycle.
Technical Outlook: Gold price extends the range play, bulls have the upper hand while above the $2,500 mark
From a technical perspective, the recent range-bound price action constitutes the formation of a rectangle on short-term charts and might still be categorized as a bullish consolidation phase against the backdrop of a rally from the June swing low. Adding to this, mixed oscillators on the daily chart make it prudent to wait for a breakout through the short-term range before placing fresh directional bets. Meanwhile, any subsequent move up might continue to confront some resistance near the $2,530-2,532 region, or the all-time peak touched in August. Some follow-through buying will be seen as a fresh trigger for bullish traders and pave the way for the resumption of the prior well-established uptrend.
On the flip side, weakness below the $2,500 mark is likely to find support near the $2,485 region ahead of the $2,470 horizontal zone. The latter coincides with the lower boundary of the aforementioned trading range and should act as a strong base for the Gold price. A convincing break below might prompt aggressive technical selling and drag the XAU/USD to the 50-day Simple Moving Average (SMA), currently pegged near the $2,453-2,452 region. The corrective decline could extend further towards testing sub-$2,400 levels, or the 100-day SMA support.
