Gold (XAU/USD) is experiencing a modest pullback from oversold levels on Monday, trading in the $2,340s. The market sentiment remains subdued as traders await potentially impactful US inflation data later in the week. Furthermore, reduced trading volumes due to public holidays in the UK and the US contribute to the quiet market conditions.
The recent retreat in gold prices follows a significant decline last week, where the precious metal fell from a peak of $2,450 to a low of $2,325. This downward movement was influenced by shifting expectations regarding the future trajectory of US interest rates.
Improved US economic data last week prompted a reassessment of market expectations for the timing of potential interest rate adjustments by the US Federal Reserve (Fed). Initially, interest-rate future markets indicated a 65% probability of a 0.25% rate cut at the Fed’s September meeting. However, this probability has now decreased to 49%, as reported by the CME Fedwatch tool.
The decision to maintain interest rates at elevated levels negatively impacts non-yielding assets like gold. This is because higher interest rates increase the opportunity cost of holding precious metals, leading to decreased demand among investors.
