During the early hours of Tuesday’s Asian session, XAU/USD made a bid to extend its gains, with prices hovering around the $1,921 level. The precious metal is benefiting from a pullback in the US Dollar (USD), offering some upward support. Nevertheless, the positive performance of US Treasury yields is serving as a constraint on the gains experienced by gold.
The US Dollar Index (DXY) is currently trading around 104.60, having faced some downward pressure due to the pullback in US bond yields. The yield on the 10-year US Treasury bond has risen to 4.30% at the time of writing, exerting some upward pressure on the USD.
Gold prices have faced downward pressure due to strong economic releases in August. Despite recent setbacks in the labor market, two robust reports, the ISM Services PMI and Initial Jobless Claims, both exceeded market expectations. As long as data continues to present a mixed outlook, it is likely that gold prices will consolidate.
Market participants are eagerly anticipating the upcoming release of the US Consumer Price Index (CPI) data for August, which holds significant importance ahead of the September monetary policy meeting of the US Federal Reserve (Fed). This data has the potential to provide further insights into the country’s inflation scenario, thereby significantly influencing investor sentiment towards the USD.
In the past week, Fed policymakers have voiced strong support for maintaining the current policy stance during the September 20 meeting. This stance is underpinned by declining inflation and a softening labor market.
However, the appeal of gold prices could be dampened in anticipation of a robust performance by the US Dollar (USD). The Greenback is anticipated to remain resilient in the face of higher interest rates, effectively absorbing their impact. Furthermore, the currency may gain additional strength from positive economic data releases in the US.
Market sentiment has been pricing in the likelihood of a 25 basis points (bps) interest rate hike by the Fed, expected to occur in either the November or December meetings. This more hawkish stance has the potential to limit the upward potential for gold prices, as it aligns with expectations of a stronger USD.
As XAU/USD continues to navigate these dynamic market conditions, traders will closely monitor the interplay between USD movements, bond yields, economic data releases, and central bank policies to gauge the direction of gold prices in the near term.
