Precious Metal Extends Gains
Gold bulls not ready to give up yet as Fed rate cut bets keep USD depressed
Gold (XAU/USD) trims part of its intraday gains but maintains a positive bias through the first half of the European session on Friday, staying close to the record high touched earlier this week. Softer labor market data overshadowed a higher-than-expected United States consumer inflation reading on Thursday and lifted bets for a more aggressive policy easing by the Federal Reserve (Fed). This, in turn, keeps the United States Dollar (USD) depressed near its lowest level since July 24 and continues to benefit the non-yielding yellow metal.
Apart from this, political turmoil in France and Japan, along with persistent trade-related uncertainties and rising geopolitical tensions, act as additional tailwinds for safe-haven gold. However, a generally positive risk tone holds back XAU/USD bulls from placing aggressive bets amid still overbought conditions on the daily chart. Nevertheless, the commodity remains on track to register strong gains for the fourth consecutive week, with the aforementioned supportive factors backing the case for additional upside.
Daily Digest Market Movers: Gold bulls have the upper hand amid supportive fundamentals
The United States Bureau of Labor Statistics (BLS) reported that the headline Consumer Price Index (CPI) rose by a seasonally adjusted 0.4% in August, pushing the annual inflation rate to 2.9% from 2.7% in July. Meanwhile, the core gauge, which excludes volatile food and energy prices, climbed 0.3% for the month and 3.1% year-over-year in August, matching the previous month's print and consensus estimates.
The higher-than-expected United States consumer inflation reading, however, was overshadowed by a rise in United States Weekly Initial Jobless Claims to the highest level since October 2021. This comes on top of a weak United States Nonfarm Payrolls report last Friday and provides further evidence of a softening labor market, which, in turn, supports the case for a more aggressive policy easing by the Federal Reserve and underpins gold.
Markets have now almost fully priced in three rate cuts for the rest of the year. According to the CME Group’s FedWatch Tool, traders see a 100% chance of a 25-basis-point rate cut at the FOMC meeting next week and expect two more rate cuts in October and December. This has dragged the yield on the benchmark 10-year United States government bond to a five-month low and the United States Dollar to its lowest level since July 24.
The British daily Financial Times reported that the President of the United States will pressure G7 countries to impose sharply higher tariffs on India and China for buying Russian oil, in an attempt to force Moscow into peace talks with Ukraine. Moreover, Japan’s Trade Ministry announced on Friday that the country will impose additional export restrictions on several foreign entities as part of sanctions against Russia.
Poland has intercepted Russian drones flying over its airspace after completing a mission in western Ukraine. This marks the first time a NATO member nation has fired shots in Russia’s war on Ukraine, raising the risk of further escalation of geopolitical tensions. In addition, ongoing conflicts in the Middle East continue to drive flows toward safe-haven bullion and strengthen the case for further gains.
Traders now look ahead to the release of the Preliminary University of Michigan United States Consumer Sentiment and Inflation Expectations data. These figures could influence USD price dynamics and create short-term trading opportunities around the XAU/USD pair heading into the weekend. Nevertheless, the overall fundamental backdrop suggests that the path of least resistance for gold remains to the upside.
Technical Outlook: Constructive setup for gold
The daily Relative Strength Index (RSI) remains in overbought territory, warranting some caution for XAU/USD bulls when positioning for further appreciation. That said, follow-through buying beyond the $3,657–3,658 region should allow gold to retest the all-time peak around the $3,675 zone touched on Tuesday. Momentum could extend further, enabling the commodity to challenge the $3,700 round figure.
On the downside, the Asian session low near $3,630 now seems to act as immediate support, ahead of the overnight swing low around $3,613–3,612 and the $3,600 round figure. This is followed by the weekly low near $3,580, below which gold could extend its corrective slide toward the $3,565–3,560 intermediate support en route to last Thursday's swing low around $3,510.