Gold prices climbed above $2,450 during Thursday’s European trading session, reflecting growing investor optimism that the Federal Reserve (Fed) might soon begin to unwind its restrictive monetary policy. This policy, in place for over two years, is expected to see adjustments starting in September.
The boost in gold prices follows the release of the US Consumer Price Index (CPI) report for July on Wednesday, which indicated a deceleration in annual headline inflation to 2.9%, down from 3% in June and below expectations. Core CPI, excluding volatile food and energy prices, increased by 3.2%, slightly lower than the previous 3.3%.
Speculation that the Fed may cut interest rates in September has put pressure on both the US Dollar (USD) and bond yields. The US Dollar Index (DXY), which measures the Greenback against six major currencies, has shown subdued performance, hovering just above a seven-month low of 102.16. Meanwhile, 10-year US Treasury yields have risen to approximately 3.84%, though they remain close to weekly lows.
Typically, lower yields on interest-bearing assets favor non-yielding assets like gold by diminishing the opportunity cost of holding them.
Market Movers and Outlook:
Gold prices have struggled to surpass the all-time high of $2,483.70, with the current gains appearing limited as traders temper expectations for aggressive Fed rate cuts. According to CME FedWatch tool data, the probability of a 50 basis point rate reduction in September has decreased to 37.5%, down from 55% a week earlier.
Despite the CPI report showing eased year-on-year price pressures, month-on-month inflation for both headline and core indices increased by 0.2%, driven by rising rents and transportation costs. This uptick has dampened speculation for substantial Fed rate cuts.
Atlanta Fed Bank President Raphael Bostic indicated in a Financial Times interview that he would support a 50 basis point rate cut if labor market conditions deteriorate further. He emphasized the need for timely monetary policy adjustments.
The upcoming US Retail Sales data for July, set for release at 12:30 GMT, will be a key focus. Retail Sales are anticipated to grow by 0.3% following a flat June.
Technical Analysis:
Gold prices are currently trading within a channel formation on the daily chart, showing a slight upward trend but mostly moving sideways over the past three months. The 50-day Exponential Moving Average (EMA) near $2,390 continues to offer support for gold prices.
The 14-day Relative Strength Index (RSI) remains within the 40.00-60.00 range, indicating market indecision.
A breakout above the all-time high of $2,483.75 could push gold prices into new territory. Conversely, the upward-sloping trendline at $2,225, originating from the October 6, 2023, low near $1,810.50, will serve as a significant long-term support level.
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