Gold falls as US Treasury yields rise, up more than 2% per month

Gold price falls below $2,500 after US PCE report, raising the possibility of Federal Reserve rate cut in September.
Fed’s cautious easing strategy raises uncertainty; markets favor 25 basis point cut.
According to the CME FedWatch tool, traders’ bets on a 25 basis point rate cut have risen to 69%; the odds of a 50 basis point cut have fallen to 31%.

Gold prices fell more than 0.90% on Friday, falling below the $2,500 level for the second day in a week after a U.S. Commerce Department report revealed that inflation continued to ease, according to the July core PCE price index. At the time of writing, XAU/USD is trading at $2,497 after hitting a high of $2,526.

Data from the U.S. Bureau of Economic Analysis (BEA) showed that the Federal Reserve’s (Fed’s) favorite inflation indicator, the core PCE index, was slightly below estimates, although it matched the June report. The data confirms the Fed’s intention to start easing monetary policy at its upcoming September meeting, although uncertainty surrounds the size of the first rate cut.

Even though Fed policymakers have adopted a “gradualism” stance, investors are speculating they could cut rates by as much as 50 basis points (bps), according to CME FedWatch Tool data. Still, Friday’s US Nonfarm Payrolls report will be key after Fed Chair Jerome Powell said employment risks are tilted to the upside.

Following the release of the US PCE report, investors increased bets on a 25 basis point rate cut by the Fed at its September meeting, with the odds standing at 69%, while the odds of a 50 basis point cut fell to 31%.

Gold prices will rise 2% in August after hitting a record high of $2,531 on August 20.

The US economy will be very lively in the coming week due to the release of PMI indicators for the manufacturing and ISM services sectors, employment data and the trade balance.

Daily Market Factors Review: Gold price falls as traders discount chances of 50 basis point rate cut

The December 2024 federal funds interest rate futures contract on the Chicago Board of Trade (CBOT) suggests investors are expecting 97 basis points of monetary policy easing from the Fed this year.
The US core PCE reading for July showed prices rising 2.6% year-over-year, unchanged from the previous month but slightly below estimates of 2.7% year-over-year. Core PCE was up 2.5% year-over-year, missing the 2.6% forecast.
Consumer spending has risen while income growth has been tardy, raising concerns about whether Americans will be able to maintain the current pace of spending.
According to the University of Michigan (UoM), the U.S. consumer sentiment index rose from 66.4 in July to 67.9 in August.
Inflation expectations fell from 2.9% to 2.8% over one year, while medium-term expectations — out to five years — remained stable at 3%.

Technical Outlook: Gold Price Rally Halts, Falls Below $2,500

Gold remains bullish despite falling below $2,500, but a bearish engulfing chart pattern is emerging. The Relative Strength Index (RSI) shows sellers in control in the compact term, despite showing mixed readings as the RSI is slightly lower but in bull territory.

If XAU/USD closes below $2,500, the next support will be the August 22 low at $2,470. Once above, the next stop will be the confluence of the August 15 swing low and the 50-day elementary moving average (SMA) at $2,431.

Conversely, if XAU/USD holds above $2,500, the next resistance will be the ATH, and the next resistance will be the $2,550 level. A break of the latter will expose the $2,600 level.