Key Points:
- Gold prices dropped as markets went on the profit-taking phase.
- Recession worries and rising expectations of US interest rate cuts limited further downside of gold prices
Gold prices (Symbol: XAUUSD) experienced a decline, mainly attributed to profit-taking activities. However, recession fears and growing expectations of US interest rate cuts provided a cushion, preventing further significant losses.
Image: XAUUSD eased due to profit-taking, as observed on the VT Markets app.
Market analysis for gold
The US jobs data released last Friday revealed that job growth in July did not meet expectations, with unemployment rising to 4.3%. This indicates potential weakness in the labour market, increasing the likelihood of a recession and strengthening the case for a rate cut at the Federal Reserve meeting in September 2024.
Traders are currently pricing in a more than 70% chance of the US central bank lowering rates by 50 basis points in September, compared to an 11.5% chance a week earlier. Lower interest rates reduce the opportunity cost of holding non-yielding bullion, making gold more attractive.
Related article: How to trade gold
The above consideration has limited the downside of the yellow metal.
Geopolitical tensions create more uncertainty
Additionally, geopolitical tensions are in focus as the US military will deploy additional fighter jets and Navy warships to the Middle East, according to the Pentagon. This move aims to bolster defences following threats from Iran and its allies Hamas and Hezbollah.
This has triggered more uncertainty and volatility as far as gold prices are concerned.
Market outlook for gold
Although profit-taking activities have led to a slight dip in gold prices, the anticipation of US interest rate cuts and recession concerns provide strong support levels.
Traders should monitor upcoming economic data and central bank announcements closely, as these will likely influence gold prices in the near term. Additionally, geopolitical developments, particularly in the Middle East, could add to market volatility, presenting further trading opportunities.
