Gold (XAU/USD) eased toward $3,350 in early European trading on Monday, weighed down by renewed US Dollar (USD) demand. However, growing expectations of a Federal Reserve (Fed) rate cut in September, following dovish remarks from Chair Jerome Powell at the Jackson Hole symposium, could cushion the downside for the precious metal.
Powell acknowledged that while the Fed may need to reduce rates in September, persistent inflation could complicate that decision. He noted the US economy faces a “challenging situation,” with inflation risks skewed upward and labor market risks shifting downward. Lower interest rates, if implemented, typically reduce the opportunity cost of holding non-yielding assets like gold, lending it some support.
Geopolitical tensions are also adding to gold’s safe-haven appeal. Ukrainian President Volodymyr Zelensky, in a defiant Independence Day speech, vowed to keep fighting until peace is achieved. His comments followed Russia’s accusation that Ukraine launched drone strikes on power facilities, sparking a fire at a nuclear plant in the Kursk region.
Markets are awaiting Thursday’s US second-quarter Gross Domestic Product (GDP) figures. The economy is expected to expand at a 3.0% annualized rate. Stronger-than-expected data could boost the Greenback, exerting additional pressure on gold prices.
Market Drivers
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Fed commentary: St. Louis Fed President Alberto Musalem said more data is needed before backing a September cut, while Boston Fed President Susan Collins highlighted resilient US fundamentals but warned tariffs could fuel inflation.
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Geopolitical tensions: Russian Foreign Minister Sergey Lavrov said President Putin is ready to meet Zelensky “once the agenda is set,” though no summit has been confirmed.
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Rate expectations: Traders now see an 85% probability of a 25 basis point cut in September, up from 75% before Powell’s remarks (CME FedWatch).
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Physical demand: Gold buying in Asia remained muted due to volatility, though Indian jewelers resumed purchases ahead of the festive season.
Gold retains a bullish tone in the longer term
The Gold price trades in negative territory on the day. Technically, the precious metal keeps the bullish vibe on the daily chart, with the price holding above the key 100-day Exponential Moving Average (EMA). However, in the near term, further consolidation cannot be ruled out as the 14-day Relative Strength Index (RSI) is hovering around the midline. This suggests the neutral momentum in the near term.
The key resistance level for yellow metal emerges in the $3,400-3,410 zone, representing the psychological level, the upper boundary of the Bollinger Band, and the high of August 8. Sustained trading above this level could take XAU/USD back toward $3,439, the high of July 23. The next hurdle is seen at $3,500, the round figure, and the high of April 22.
In the bearish event, the initial support level for the yellow metal is located at $3,315, the low of August 19. A break below the mentioned level might even drag the gold price lower to $3,285, the lower limit of the Bollinger Band. The next contention level to watch is $3,268, the 100-day EMA.
