Gold poised for monthly gain as market focuses on U.S. data

August 30, 2024

Key points:

• Gold is down slightly but remains on track for a 3% monthly gain, its second consecutive rise.
• Strong U.S. GDP and consumer spending data have kept traders focused on the likelihood of a Fed rate cut.
• Traders are awaiting the Fed’s preferred inflation gauge, the PCE, to gauge the central bank’s next moves.

Gold prices (Symbol: XAUUSD) are showing resilience, poised to log their second consecutive monthly gain as market sentiment remains buoyant on the back of potential U.S. interest rate cuts. Spot gold was trading slightly lower at $2,517.91 per ounce, but it remained up by about 3% for the month of August 2024, signalling strong underlying support.

Picture: XAUUSD prices are on track for a second consecutive monthly gain, as observed on the VT Markets app.

The U.S. economy continues to demonstrate strength, with GDP growing at an annualised rate of 3.0% last quarter, surpassing initial estimates of 2.8%. Consumer spending also saw an upward revision to 2.9%, further fueling expectations that the Federal Reserve might implement a rate cut in September. These developments have kept traders on their toes, with the CME FedWatch tool indicating a 66% probability of a 25-basis-point cut and a 34% chance of a more aggressive 50-basis-point reduction.

In addition to economic data, geopolitical tensions continue to lend support to gold, a traditional safe-haven asset. For instance, a recent incident in the Gaza Strip involving a World Food Programme vehicle highlights the ongoing risks that could potentially drive investors towards bullion.

The market is now keenly awaiting the release of the Personal Consumption Expenditures (PCE) index, the Fed’s preferred measure of inflation. The data, due later in the day, will provide critical insights into the central bank’s policy direction. A softer-than-expected PCE could increase the likelihood of a rate cut, further supporting gold prices.

Gold outlook and opportunities

The potential for a U.S. interest rate cut in September could drive gold prices higher, especially if the PCE data aligns with market expectations. However, the recent strength in U.S. economic data suggests that the Fed might opt for a more cautious approach, which could limit gold’s upside in the near term.

Read more on: How to trade gold

Traders should keep a close watch on the PCE release and any developments in geopolitical tensions, as these factors could prompt swift movements in gold prices. With the market sentiment currently skewed towards a rate cut, any deviation from this expectation could lead to significant volatility.

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