• Gold prices rise in a risk-on atmosphere, ignoring robust US data, while the US dollar hits a 12-month low.
• Powell’s dovish comments keep US Treasury yields stable, put pressure on the US dollar and increase the price of gold.
• The focus shifts to the upcoming PCE and labor market data, which are crucial for the Fed’s decisions; the prospect of a rate cut strengthens gold.

Gold prices rose sharply during Tuesday’s North American session amid a risk-on environment and stable US Treasury yields. Investors ignored better-than-expected economic data from the United States (US), which did not support the already battered greenback. The XAU/USD rate is trading at $2,524, up over 0.20%.

The mood in financial markets has not changed since US Federal Reserve (Fed) Chairman Jerome Powell announced last Friday that the time had come for interest rate cuts. This sent US Treasury yields plummeting and the US dollar falling to a new 12-month low, a level last seen in July 2023, as shown by the US Dollar Index (DXY).

The DXY is at 100.55, losing 0.31 percent, while the yield on the 10-year US benchmark bond remains virtually unchanged at 3.829 percent.

American consumers became slightly more optimistic in August, according to a survey by the US Conference Board (CB). However, traders remain fully focused on Friday’s release of the core personal consumption expenditures (PCE) index, the Fed’s preferred inflation indicator, as well as labor market data and the initial jobless claims report, which will be released on August 29.

This could be a prelude to the upcoming non-farm payrolls report, as the Fed is now concerned about the labor market. The labor market will remain healthy if Americans’ jobless claims come in below estimates. Otherwise, the U.S. dollar could weaken further, which would provide a tailwind for gold prices.

The Chicago Board of Trade (CBOT) December 2024 Fed Funds Future Rates contract suggests investors expect the Fed to cut interest rates by 100 basis points this year, up from 97 on Monday. This means traders are expecting a 50 basis point rate cut at the September meeting, even though the probability of a rate cut of that magnitude is 34.5%, according to the CME FedWatch tool.

Rising tensions in the Middle East have boosted gold prices. The conflict between Israel and Hezbollah escalated over the weekend, and fears that the conflict could escalate would be positive for the gold metal.

Daily overview of market drivers: Gold price rises despite disregard for consumer confidence data

• If US economic data remains weak, the upward trend in gold prices is likely to continue and fuel speculation about a deeper interest rate cut by the Fed.
• The US Conference Board announced that the consumer confidence reading for August was 103.3, up from an upwardly revised reading of 101.9 in July and beating estimates of 100.7.
• Gross domestic product (GDP) figures for the second quarter are expected to improve from 1.4% to 2.8% in the second estimate.
• The Fed’s most popular inflation indicator, the PCE (Personal Consumption Expenditures) price index, will be released on Friday. It is expected to rise to 2.7% year-on-year from 2.6%.

Technical outlook: Gold’s uptrend intact, buyers target USD 2,550

The uptrend in gold prices remains intact, even though price developments over the past few days show that traders are hesitant to position themselves ahead of the release of PCE data.

From a momentum perspective, unlike the XAU/USD price action, the Relative Strength Index (RSI) is failing to break above its recent high, which means that a negative divergence could be looming.

If XAU/USD breaks below the current weekly low of $2,503 and $2,500, it would pave the way for a deeper decline. The next support would be the July 17 high at $2,483, followed by the psychological level of $2,450. Further downside can be expected at the 50-day SMA (simple moving average) at $2,410, ahead of $2,400.

On the other hand, if bullion prices break above the all-time high (ATH) of $2,531, it could allow a rally to $2,550 before reaching the $2,600 mark.