Gold price remains above $2,400 and continues its third week of gains

Gold is holding at a key support level, marking its third consecutive weekly gain on expectations of a Federal Reserve rate cut.
US Producer Price Index rose above estimates; consumer sentiment at University of Michigan fell, inflation expectations moderate.
CME FedWatch tool indicates 94% probability of September rate cut; US Dollar Index falls over 0.40% to 104.09.

Gold held above $2,400 on Friday after hitting an intraday low of $2,391. The gold metal is set to continue its gains for a third straight week on speculation that the Federal Reserve (Fed) may begin an easing cycle in September. Data from the U.S. Labor Department showed factory prices rose above estimates, although they failed to support the U.S. dollar, a tailwind for the precious metal.

XAU/USD is trading at $2,415, virtually unchanged. The U.S. Bureau of Labor Statistics said Friday that the Producer Price Index (PPI) rose slightly in June, above analysts’ estimates. The University of Michigan’s preliminary consumer sentiment reading for July worsened, but inflation expectations weakened.

According to the CME FedWatch tool, investors are pricing in a 94% probability that the Federal Reserve will cut interest rates by a quarter percentage point in September.

Hence, the yield on US Treasury bonds is falling, which is favorable for the low-yielding metal that benefits from low yields. The coupon on the 10-year US Treasury bond is yielding 4.19%, two basis points below the opening price.

Sources cited by Barron’s stated: “Inflation is falling, but it’s not going away. Gold and gold miners are attractive inflation hedges.”

Meanwhile, Fed officials remain cautious about changes to monetary policy. Chicago Fed President Goolsbee noted that recent inflation data has been “favorable” and could shorten the Fed’s path to achieving its inflation goals.

US Federal Reserve Chairman Alberto Musalem said the current level of interest rates is appropriate for current conditions and predicts the economy will grow by 1.5-2% this year.

Meanwhile, the U.S. Dollar Index (DXY), which tracks the greenback against a basket of six currencies, fell more than 0.40% to 104.09.

Daily Market Factors Review: Gold Price Remains Flat After US Producer Price Index

The US Producer Price Index (PPI) rose 0.2% MoM in June, exceeding the 0.1% expected and exceeding the 0% recorded in May. The core PPI rose 0.4% MoM, exceeding the 0.2% forecast.
In annual terms, the PPI rose from 2.4% to 2.6%, beating the forecast of 2.3%. Core inflation rose to 3% from 2.6%.
UoM Consumer Sentiment fell from 68.2 in June to 66.0 in July. Inflation expectations for the year were in line with expectations at 2.9%, down from 3%.
The U.S. Dollar Index (DXY), which tracks the value of a basket of six currencies against the U.S. dollar, fell more than 0.30% to 104.12.
The probability of an interest rate cut in September is 88%, up from 85% on Thursday, according to the CME FedWatch Tool.
The federal funds rate futures contract due December 2024 implies the Fed will ease policy by 49 basis points (bps) by the end of the year, down from 39 bps a day earlier.
Bullion prices fell slightly on the back of the People’s Bank of China’s (PBoC) decision to halt gold purchases in June, as it did in May. China held 72.80 million troy ounces of the precious metal at the end of June.

Technical Analysis: Gold Buyers Take a Break, Gold Holds Above $2,400

Gold is consolidating above $2,400 for a second straight day after a decisive break of the head and shoulders neckline. Momentum favors buyers, although a flat Relative Strength Index (RSI) shows they are taking a break before testing higher prices.

That said, the path of least resistance is up. The first resistance for XAU/USD is the yearly high at $2,450, ahead of $2,500. Conversely, if gold falls below $2,400, the next demand zone will be the July 5 high at $2,392. If it is breached, XAU/USD will remain at $2,350.