Gold prices exhibited a robust upswing during the North American session on Tuesday, buoyed by a prevailing risk-on atmosphere and steady US Treasury yields. Notably, investors seemed unperturbed by the release of encouraging economic data from the United States, which failed to provide support for the beleaguered Greenback. The XAU/USD pair is currently trading at $2,524, marking a notable gain of over 0.20%.
The financial landscape has largely remained consistent following Federal Reserve (Fed) Chair Jerome Powell’s declaration last Friday regarding the imminent need for interest rate cuts. This pronouncement triggered a decline in US Treasury bond yields and pushed the US Dollar to its lowest point in 12 months, levels not witnessed since July 2023, as illustrated by the US Dollar Index (DXY).
The DXY index currently stands at 100.55, experiencing a decline of 0.31%, while the yield on the US 10-year benchmark note remains relatively stable at 3.829%.
In a recent survey conducted by the US Conference Board (CB), American consumer sentiment in August exhibited a marginal uptick. However, market participants are eagerly anticipating the release of the core Personal Consumption Expenditures Price Index (PCE) on Friday, a key metric favored by the Fed for gauging inflation, alongside crucial labor market data, including the Initial Jobless Claims report set for announcement on August 29.
The forthcoming employment data could serve as a precursor to the impending Nonfarm Payrolls report, aligning with the Fed’s growing focus on labor market conditions. A favorable report indicating a decrease in individuals filing for unemployment claims could exert downward pressure on the US Dollar, thereby potentially bolstering Gold prices.
Market indicators, such as the December 2024 Chicago Board of Trade (CBOT) fed funds future rates contract, suggest that investors are contemplating the possibility of a 100 basis point reduction in Fed rates by the end of this year, up from the previous estimate of 97 basis points on Monday. This implies that market participants are anticipating a 50 basis point interest rate cut at the September meeting, although the probability of such a substantial rate cut currently stands at 34.5%, according to the CME FedWatch Tool.
Furthermore, the escalation of tensions in the Middle East, particularly the heightened conflict between Israel and Hezbollah over the weekend, has provided a significant boost to bullion prices. Concerns regarding the potential escalation of the conflict are viewed as a favorable development for the precious metal.
