Gold Price Struggles Despite Larger Fed Rate Cut Bets and Weaker US Bond Yields
Overview: Current Gold Market Dynamics
The gold price (XAU/USD) continues to hover below the significant $2,500 mark, maintaining a sideways consolidative movement during Thursday’s Asian session. Despite the supportive backdrop of rising expectations for a larger interest rate cut by the Federal Reserve (Fed) in September, gold remains under pressure. This cautious approach from traders comes as they await the release of the crucial US Nonfarm Payrolls (NFP) report on Friday, which could provide clearer insights into the economic outlook and influence market sentiment.
Supportive Factors for Gold
Fed Rate Cut Bets and Economic Concerns
Gold prices have found some support due to increased speculation about a 50 basis points (bps) rate cut by the Fed at its upcoming September meeting. This speculation was fueled by a recent US labor market report showing that job openings fell to a three-and-a-half-year low in July. The Job Openings and Labor Turnover Survey (JOLTS) revealed that job openings dropped to 7.673 million, the lowest level since January 2021, with June’s figures also revised downwards. This weakening in the labor market has heightened concerns about the health of the US economy, leading to expectations of a more dovish stance from the Fed.
Additionally, the Fed’s Beige Book report highlighted that economic activity in nine out of 12 regional districts was flat or declining in August, a notable increase from the five districts reporting weak conditions in mid-July. Comments from Fed officials, including Atlanta Fed President Raphael Bostic and San Francisco Fed President Mary Daly, have further fueled speculation of a rate cut. Bostic noted that price pressures are diminishing rapidly, and Daly emphasized the need for rate cuts to maintain a healthy labor market. These dovish signals have provided a tailwind for gold, a non-yielding asset that benefits from lower interest rates.
Falling US Bond Yields and a Weaker US Dollar
The dovish outlook has also dragged down yields on US government bonds, particularly the rate-sensitive two-year yield, which hit its lowest level since May 2023. The benchmark 10-year US Treasury yield followed suit, reaching its lowest point since July 2023. The decline in bond yields has kept US Dollar bulls on the defensive, further supporting gold prices. Lower yields reduce the opportunity cost of holding non-yielding assets like gold, making it more attractive to investors.
Moreover, the generally softer tone in global equity markets has increased the appeal of gold as a safe-haven asset. The combination of a weakening US Dollar and falling bond yields has helped gold hold above its recent two-week low, despite the lack of aggressive bullish bets.
Market Sentiment: Waiting for Key US Data
Nonfarm Payrolls Report as a Crucial Catalyst
Despite the supportive fundamentals, traders are cautious about making aggressive bullish bets on gold ahead of the release of the US NFP report on Friday. The NFP report is a critical indicator of the US labor market’s health and could significantly influence market expectations regarding the Fed’s next move. The outcome of the NFP report will likely determine the near-term direction of gold prices, with traders looking for confirmation of a weakening labor market that could justify a larger rate cut by the Fed.
Thursday’s Economic Data Releases
Before the NFP report, Thursday’s US economic docket will be closely watched for short-term trading opportunities. Key releases include the ADP report on private-sector employment, Weekly Initial Jobless Claims, and the ISM Services PMI. These data points will provide additional insights into the state of the US economy and could influence market sentiment ahead of Friday’s NFP report.
Technical Outlook: Key Levels to Watch
Resistance Levels
From a technical perspective, gold faces significant resistance around the $2,524-$2,525 supply zone, just below the all-time high of $2,531-$2,532 touched last month. A decisive break above this resistance zone could signal a resumption of the well-established uptrend, with positive oscillators on the daily chart supporting the case for further gains. If bulls manage to clear this hurdle, follow-through buying could trigger a fresh rally toward new highs.
Support Levels
On the downside, the $2,471-$2,470 horizontal zone has emerged as immediate strong support. A break below this level could lead to a slide towards the 50-day Simple Moving Average (SMA), currently situated near the $2,435 region. Should the price breach this support, it might prompt additional technical selling, exposing the 100-day SMA around the $2,386 area. There is also some intermediate support near the $2,400 round figure, which could provide a temporary floor for gold prices if selling pressure intensifies.
A Cautious Path Ahead
In conclusion, while the gold market benefits from the current dovish outlook for Fed policy and weaker US bond yields, traders remain cautious ahead of key US economic data. The NFP report on Friday will be a crucial determinant of the near-term direction for gold prices. Until then, the market is likely to remain in a consolidative mode, with key technical levels providing potential triggers for the next significant move.
