Gold prices (XAU/USD) continued their decline on Monday, nearing the key $2,500 psychological level. The stronger US Dollar, buoyed by July’s US Personal Consumption Expenditures (PCE) Index, has put pressure on the precious metal. Additionally, concerns over China’s sluggish economy, the world’s largest gold buyer, have further contributed to gold’s downside.
However, rising expectations of an interest rate cut by the US Federal Reserve (Fed) in September may help limit gold’s losses. Lower interest rates generally reduce the opportunity cost of holding non-yielding assets like gold. Traders will be watching for upcoming US economic data, including Tuesday’s ISM Manufacturing PMI, Thursday’s Services PMI, and Friday’s employment data, which includes Nonfarm Payrolls (NFP), the Unemployment Rate, and Average Hourly Earnings for August.
Market Movers: Gold Falls as US PCE Inflation Rises
Gold prices retreated after the release of the US PCE inflation report, which showed a 2.5% year-over-year increase in July, in line with the previous month but slightly below market expectations of 2.6%. The core PCE, excluding food and energy, rose by 2.6% YoY, also matching the prior figure but falling short of the anticipated 2.7%.
The market is now pricing in a nearly 70% chance of a 25 basis point rate cut by the Fed in September, with a 30% likelihood of a 50 bps cut, according to the CME FedWatch Tool.
Technical Analysis: Gold Maintains Bullish Long-Term Outlook
Despite its recent decline, gold continues to hold a broader bullish trend on the daily chart, remaining above the key 100-day Exponential Moving Average (EMA). The 14-day Relative Strength Index (RSI) remains above the midline at around 56.30, indicating that the path of least resistance is still to the upside.
Gold bulls face a significant challenge at the five-month-old ascending channel’s upper boundary and the all-time high of $2,530-$2,540. A breakout above this level could pave the way to the $2,600 psychological mark. On the downside, the first target is $2,470, followed by $2,432, with the 100-day EMA at $2,372 as a key support level.
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