Gold Price Remains Depressed as USD Gains Traction Ahead of US Inflation Data
Overview of Gold Price Movements and Market Sentiment
Gold price (XAU/USD) is experiencing a slight decline as it enters the European session on Tuesday, though it manages to stay above the critical psychological level of $2,500. The recent pullback from gold comes as the US Dollar (USD) strengthens for the third consecutive day, driven by reduced market expectations of a larger 50-basis points (bps) interest rate cut by the Federal Reserve (Fed) in September. This has diminished demand for gold, a traditional safe-haven asset, while a generally positive tone in equity markets further weakens its appeal.
Factors Influencing Gold Price Movements
While gold’s downward trajectory is noticeable, its decline remains limited due to traders eagerly awaiting the upcoming US inflation data, which will likely determine the next significant price movements. Investors are cautious about placing fresh bets on gold while waiting for clearer indications on the Fed’s rate-cut path. These cues are expected to come from key inflation reports, including the US Consumer Price Index (CPI) and Producer Price Index (PPI), which will be released on Wednesday and Thursday. The outcome of these reports will influence near-term USD price dynamics and shape the future movement of XAU/USD.
Market Movers Impacting Gold Price
USD Strength and Fed Rate Cut Speculation
One of the primary factors weighing on the gold price is the strength of the USD, which has benefited from mixed US employment data released last Friday. This data has reduced the likelihood of a 50-bps rate cut by the Fed in September. The CME Group’s FedWatch tool now indicates a 71% probability of a 25-bps rate cut and a 29% chance of a 50-bps cut at the upcoming Federal Open Market Committee (FOMC) meeting on September 17-18.
Fed Officials’ Remarks on Monetary Policy
Recent comments from various Fed officials have provided further insight into the central bank’s potential course of action. New York Fed President John Williams indicated that inflation expectations remain well anchored, suggesting that monetary policy could be adjusted toward a more neutral stance, depending on incoming data. Similarly, Fed Governor Christopher Waller highlighted the importance of maintaining economic momentum, signaling that the time has come to start reducing interest rates. Chicago Fed President Austan Goolsbee also emphasized that the Fed is finally catching up with market sentiment, acknowledging the need for a policy shift.
These comments suggest that, despite the USD’s recent strength, the broader market remains optimistic about the potential for rate cuts. This, in turn, points to the likelihood that any significant gold price depreciation may be limited in the near term.
US Inflation Data and Market Expectations
The upcoming release of US inflation data is a key factor influencing both USD and gold price movements. On Wednesday, investors will closely watch the CPI data, followed by the PPI figures on Thursday. These reports are expected to provide crucial insights into the Fed’s future rate-cut strategy, and market participants are bracing for potential volatility in response to these figures. A higher-than-expected inflation reading could support the USD, applying downward pressure on gold, while a weaker print might boost the yellow metal as it reinforces the case for a more aggressive rate cut by the Fed.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Technical Outlook for Gold Price
Range-Bound Trading and Bullish Consolidation
From a technical standpoint, gold price has been trading within a relatively tight range over the past three weeks, forming a rectangle pattern on the daily chart. This consolidation phase follows gold’s recent rally to an all-time high and is viewed as a bullish consolidation. Oscillators on the daily chart remain in positive territory, further validating the optimistic outlook for gold.
However, it is important to exercise caution before positioning for further appreciation in gold prices. A decisive breakout through the upper boundary of the trading range—near the all-time high of $2,530-$2,532—is necessary to confirm a continuation of the bullish trend.
Key Support and Resistance Levels
In the event of a downside move, key support levels lie around the $2,485 region, followed by the $2,470 horizontal zone. This lower boundary of the current trading range represents a critical support area, and a decisive break below this level could trigger technical selling, leading to deeper losses. In such a scenario, the gold price might accelerate its decline toward the 50-day Simple Moving Average (SMA), which is currently positioned near $2,446, with the next support target in the $2,410-$2,400 region.
Summary of Key Factors
To summarize, the gold price is struggling to find meaningful upward momentum due to the USD’s strength, driven by reduced expectations of a 50-bps Fed rate cut. Nevertheless, downside risks are limited as traders await the upcoming US inflation data, which will provide fresh insights into the Fed’s monetary policy outlook. While the technical setup for gold remains bullish, a sustained breakout above the $2,530-$2,532 region is necessary to confirm further gains. On the other hand, a break below the $2,470 support level could open the door to deeper losses in the near term.
As market participants look toward the US inflation figures, the gold market remains in a holding pattern, with both bulls and bears awaiting clear direction from this key economic data release.
