Gold prices witnessed a significant decline of over 0.90% on Friday, going below the $2,500 level for the second time this week. This dropped occurred for the second day in a row. A report from the United States Department of Commerce, which revealed that inflation is continuously reducing, provided the impetus for this reduction. This lower trend was demonstrated by the core Personal Consumption Expenditures Price Index (PCE) for the month of July. An all-time high of $2,526 was set by the XAU/USD exchange rate, which is now trading at $2,497.
According to information provided by the Bureau of Economic Analysis (BEA) of the United States, the core PCE, which is the preferred inflation indicator of the Federal Reserve, dropped slightly below forecasts despite the fact that it was in line with the report from June. The information substantiates the Federal Reserve’s intention to commence the process of easing monetary policy at the meeting that is scheduled to take place in September. On the other hand, there is a degree of ambiguity around the extent of the initial fall in interest rates.
There is conjecture among investors that the Federal Reserve may potentially decrease interest rates by as much as fifty basis points (bps), as suggested by the data provided by the CME FedWatch Tool. This speculation is in spite of the cautious approach that the Fed officials have taken. On the other hand, the impending data on nonfarm payrolls in the United States, which is scheduled to be released on Friday, will be of considerable significance, particularly in light of the comment made by Fed Chair Jerome Powell, which indicated that there is a more significant possibility of good employment outcomes.
In the wake of the publication of the US PCE data, market participants have raised their anticipation of a rate reduction by the Federal Reserve of 25 basis points during the meeting that will take place in September. The probability of this happening has now reached 69%. During this time, the likelihood of a more aggressive reduction of fifty basis points has reduced to thirty-one percent.
As a result of the unprecedented increase in the price of gold to $2,531 on August 20, bullion prices are expected to rise by 2% throughout August for the first time.
The following week will be packed with a number of significant events that will take place on the economic calendar of the United States. These events include the publishing of the ISM Manufacturing and Services PMIs, statistics on employment, and the Balance of Trade.
Gold Price Declines as Traders Reduce the Likelihood of a 50-Basis Point Interest Rate Cut
- According to the Chicago Board of Trade (CBOT), Fed funds future rates contract for December 2024, investors are contemplating the likelihood of a fall of 97 basis points in the Federal Reserve’s interest rates during the current year.
- The reading for the core PCE in the United States for July indicated that prices had increased by 2.6% year-over-year. This increase was consistent when compared to the previous month, but it was somewhat lower than the projected growth of 2.7% year-over-year. The gross domestic product (PCE) number did not meet expectations, with a year-on-year gain of 2.5%, which was somewhat lower than the growth projection of 2.6%.
- Concerns have been raised about the long-term viability of the present spending rate among Americans since consumer expenditures have soared, but income growth has remained modest.
- The University of Michigan (UoM) said that there was a modest increase in the level of consumer sentiment in the United States, which went from 66.4 in July to 67.9 in August.
- There was a decline in the one-year inflation forecasts, which went from 2.9% to 2.8%. On the other hand, the medium-term estimates for five years stayed steady at 3%.
The Upward Momentum in Gold Prices Has Come to a Pause, Causing a Retreat Below the $2,500 Mark.
Despite the fact that it has lately dropped below $2,500, the price of gold continues to demonstrate an increasing tendency. However, there is a chart pattern that is known as a “bearish engulfing,” which is a cause for caution since it can affect the market.
Sellers are now in the driver’s seat in the near term, according to the Relative Strength Index (RSI), despite the fact that the readings are somewhat inconsistent. The Relative Strength Index (RSI) is showing a slight descent, although it is still in the positive zone.
The second level of support to keep an eye out for would be the low that was witnessed on August 22, which is now at $2,470. This would be the case in the event that the XAU/USD pair could shut below the $2,500 mark for the day. The third goal would be the place where the swing low from August 15 and the 50-day Simple Moving Average (SMA) cross, which happens to be priced at $2,431. This would be the destination after the previous target was exceeded.
On the other hand, if the XAU/USD pair is able to maintain its position above $2,500, it will first confront the next level of resistance at the all-time high (ATH), and then it will meet another obstacle at the $2,550 mark. In the event that this regulation is broken, a loss of $2,600 will be incurred.