Gold Price Forecast: XAU/USD Holds Below $2,500 as Fed Rate Cut Hopes Grow

Gold prices (XAU/USD) have managed a slight recovery during Wednesday’s Asian session, edging up from multi-day lows but still hovering below the crucial $2,500 level.

The price increase has been driven primarily by escalating geopolitical tensions in the Middle East and rising expectations of a potential Federal Reserve rate cut. However, a stronger US dollar continues to limit gold’s upward momentum, keeping the metal below key resistance levels.

Impact of US Dollar Strength and Fed Rate Cut Speculation

The recent strength of the US dollar has capped gold’s potential for more significant gains. Traders are eagerly awaiting key US economic data, including JOLTS Job Openings and the Fed’s Beige Book, both scheduled for release later on Wednesday. The week’s most anticipated report, the US August Nonfarm Payrolls (NFP) data, due Friday, could further influence expectations of Federal Reserve rate cuts.

#XAUUSD As expected yesterday after the completion of M pattern, Gold bounced up. Then it resumed the real path which is down. It is still going as per plan. But beware od the retest of the recent lows and news coming. Manage the risk and get the profits whenever you can… pic.twitter.com/GukTXTmFBI

— Vik Aggarwal (@vikinsa) September 4, 2024

A weaker-than-expected NFP report could heighten concerns of a US economic recession, bolstering the case for a more aggressive rate cut. Currently, there is a 39% probability of a half-point rate cut, up from 31% following the latest ISM Manufacturing PMI data, which showed a modest increase to 47.2 in August—still below the expected 47.5. Additionally, the JOLTS Job Openings are forecasted to slightly decline to 8.10 million from 8.184 million in June, with ISM Services PMI expected to edge up to 51.4 in August.

The potential for lower interest rates benefits gold, as the opportunity cost of holding non-yielding assets diminishes, making the metal more attractive to investors.

China’s Economic Slowdown and Geopolitical Risks Support Gold

In addition to domestic factors, China’s weakening economic data has also contributed to supporting gold prices. The Caixin Services PMI dropped to 51.6 in August, down from 52.1 in July, falling short of market expectations and intensifying concerns over China’s economic health. This has added to the bearish sentiment surrounding gold.

#XAUUSD (Update)…!!
BULLISH Short Trum 🚀

GOLD is trading is in sideway and the pair is about To retest the horizontal support Of 2494/90 from where a local Rebound and a move up Are to be expected..!! 🙂 pic.twitter.com/5MhP4xaOTO

— Forex Market Makers (@MakersForex) September 1, 2024

Geopolitical tensions in the Middle East, especially in Israel and Gaza, are further adding to gold’s appeal as a safe-haven asset. These ongoing tensions provide support to the metal, even as other factors weigh against it.

Gold Technical Outlook

Gold (XAU/USD) is currently trading at $2,486.21, down 0.27%, reflecting continued bearish sentiment. The key pivot point is at $2,496.11, just below the 50-day Exponential Moving Average (EMA) of $2,507.69. A break below this critical level could invite more selling pressure, with immediate support at $2,467.35 and deeper levels at $2,452.84.

On the upside, resistance is seen at $2,527.08 and $2,540.41, though the downward momentum appears more compelling in the short term. The Relative Strength Index (RSI) is currently at 40, indicating that prices are nearing oversold territory, potentially signaling a reversal. However, if gold fails to hold the $2,496 level, a deeper decline toward $2,475 and lower could be in play.

Gold’s price action will remain heavily influenced by external factors, including the US dollar’s strength and geopolitical risks. Investors should closely watch these indicators to gauge gold’s next move.