- Gold has reached a new record high, as the data on US jobless claims and producer inflation suggests the likelihood of a Federal Reserve rate cut.
- The US Dollar Index (DXY) has experienced a 0.29% decrease, while US Treasury yields have increased, with the 10-year Treasury note currently standing at 3.689%.
- According to the CME FedWatch Tool, there is an 85% probability of a 25 basis point reduction in the Fed rate, which further enhances the allure of Gold in an environment characterized by low interest rates.
Gold prices rallied to new all-time highs above $2,550 after US data reinforced that the US Federal Reserve (Fed) would likely lower interest rates next week. At the time of writing, the XAU/USD trades at $2,552 after bouncing off a daily low of $2,511 to gain 1.67%.
Sentiment is upbeat as Wall Street posts gains. The US Labor Department revealed that Initial Jobless Claims for the week ending September 7 rose as expected, increasing above the previous week’s reading. Other data showed that prices paid by producers, known as factory inflation, rose above estimates due to higher costs in services.
After the data, the US Dollar Index (DXY), which tracks the buck’s performance against its peers, dived to a daily low of 101.44 and lost 0.29%. On the contrary, US Treasury yields rose, with the 10-year T-note gaining three and a half basis points (bps) and sitting at 3.689%.
A source quoted by Reuters noted, “We are headed towards a lower interest rate environment, so gold is becoming a lot more attractive… I think we could potentially have a lot more frequent cuts as opposed to a bigger magnitude.”
The CME FedWatch Tool shows that market participants are pricing an 85% chance of the Fed lowering rates by 25 basis points and a 15% odds of a 50 bps cut.
Besides US data fueling expectations for the Fed’s first cut, the European Central Bank (ECB) lowering rates by a quarter of a percentage point sponsored a rally on the EUR/USD and weighed on the Greenback’s value.
Bullion traders will examine the Consumer Sentiment survey released by the University of Michigan on Friday.
Daily digest market moves: Gold price surges post US jobs and inflation data
- The Bureau of Labor Statistics (BLS) revealed that Initial Jobless Claims for the week ending September 7 rose 230K as expected, up from 228K on the previous number.
- August’s Producer Price Index (PPI) rose by 1.7% YoY, slightly below estimates of 1.8%, while core PPI increased from 2.3% to 2.4%, below expectations of 2.5%.
- Monthly, headline and core PPI increased compared to the previous month’s reading. Headline PPI expanded by 0.2%, exceeding the 0.1% forecast, and core PPI rose by 0.3%, up from 0.2%.
- Today’s data and Wednesday’s Consumer Price Index (CPI) have cemented a 25 bps rate cut, sponsoring Gold’s rally ahead of the Fed’s meeting.
- Data from the Chicago Board of Trade suggests the Fed will cut at least 98 basis points this year, down from 108 a day ago, according to the fed funds rate futures contract for December 2024.
Technical outlook: Gold price clings to $2,500 despite posting losses
Gold prices skyrocketed to new all-time highs (ATH), clearing on its way north the previous ATH at $2,531 and the $2,550 figure. Momentum accelerated to the upside despite the inverse correlation between bullion prices and US Treasury yields breaking during the day.
If XAU/USD extends its uptrend, the next resistance would be the psychological key levels like the $2,575 mark, followed by the $2,600 figure.
For a pullback, sellers must clear $2,550, followed by the August 20 high at $2,531 before aiming toward $2,500. On further weakness, the next support would be the August 22 low at $2,470, followed by the May 20 peak at $2,450.
