Gold prices (XAU/USD) rose to $2,395 during early Asian trading hours on Monday, driven by investor optimism for a potential interest rate cut by the Federal Reserve (Fed) in September, following softer US inflation data. Market participants are eagerly anticipating the Fed’s interest rate decision on Wednesday, although no immediate rate change is expected.
Recent signs of progress in curbing inflation have fueled expectations that the Fed may start easing monetary policy in September. Lower interest rates generally make non-yielding bullion more attractive by reducing its opportunity cost. Fawad Razaqzada, a market analyst at forex.com, highlighted that mixed-to-weaker US data released on Friday suggests diminishing inflationary pressures and slowing economic activity, supporting the case for the Fed to reduce rates twice this year.
According to the Commerce Department, the Personal Consumption Expenditures (PCE) Price Index increased by 0.1% month-over-month and 2.5% year-over-year in June, aligning with market expectations. This compares to a year-over-year gain of 2.6% and an unchanged monthly figure in May.
Core PCE inflation, excluding food and energy, rose to 0.2% month-over-month from 0.1% in May, with an annual increase to 2.6% from 2.5% in May. Both figures met market expectations. Investors are now pricing in nearly 90% odds of a Fed rate cut in September, followed by additional cuts in November and December, as indicated by the CME FedWatch Tool.
However, the sluggish Chinese economy and reduced buying interest from China’s central bank could limit gold’s upside potential. As the largest producer and consumer of gold globally, China’s economic conditions significantly impact the metal’s demand. Analysts at TD Securities noted that gold might continue to face pressure due to the impact of overweight long positions and a decline in Asian demand.
