Gold bulls not ready to give up yet as Fed rate cut bets keep USD depressed

Gold (XAU/USD) trims a part of its intraday gains, though it sticks to positive bias through the first half of the European session on Friday and remains close to the record high touched earlier this week. Softer labor market data overshadowed a higher-than-expected US consumer inflation reading on Thursday and lifted bets for a more aggressive policy easing by the Federal Reserve (Fed). This, in turn, keeps the US Dollar (USD) depressed near its lowest level since July 24 and continues to benefit the non-yielding yellow metal.

Apart from this, political turmoil in France and Japan, along with persistent trade-related uncertainties and rising geopolitical tensions, turn out to be other factors acting as a tailwind for the safe-haven Gold. However, a generally positive risk tone holds back the XAU/USD bulls from placing aggressive bets amid still overbought conditions on the daily chart. Nevertheless, the commodity remains on track to register strong gains for the fourth straight week, and the aforementioned supportive factors back the case for additional gains.

Daily Digest Market Movers: Gold bulls have the upper hand amid supportive fundamental backdrop

• The US Bureau of Labor Statistics (BLS) reported that the headline Consumer Price Index (CPI rose by a seasonally adjusted 0.4% in August, pushing the annual inflation rate to 2.9% from 2.7% recorded in July. Meanwhile, the core gauge, which excludes volatile food and energy prices, climbed 0.3% for the month and 3.1% on a yearly basis in August, matching the previous month's print and consensus estimate.
• The higher-than-expected US consumer inflation reading, however, was overshadowed by a rise in the US Weekly Initial Jobless Claims to the highest level since October 2021. This comes on top of a weak US Nonfarm Payrolls report last Friday and provides further evidence about the softening labor market, which, in turn, backs the case for a more aggressive policy easing by the Federal Reserve and underpins the Gold.
• The markets have now almost fully priced in three rate cuts for the rest of the year. According to the CME Group’s FedWatch Tool, traders see a 100% chance of a 25-basis-point rate cut at the FOMC meeting next week and expect two more rate cuts, in October and in December. This dragged the yield on the benchmark 10-year US government bond to a five-month low and the US Dollar to its lowest level since July 24.
• The British daily Financial Times reported that the Donald Trump administration in the US will pressure G7 countries to hit India and China with sharply higher tariffs for buying Russian oil in an attempt to force Moscow into peace talks with Ukraine. Moreover, Japan’s Trade Ministry announced on Friday that the country will impose additional export restrictions on several foreign entities as part of sanctions against Russia.
• Poland has intercepted Russian drones that were flying over its airspace after completing a mission in western Ukraine. This was the first time a NATO member nation has fired shots in Russia’s war on Ukraine, raising the risk of a further escalation of geopolitical tensions. Apart from this, the ongoing conflicts in the Middle East contribute to driving flows towards the safe-haven bullion and back the case for further gains.
• Traders now look to the release of the Preliminary University of Michigan US Consumer Sentiment and Inflation Expectations. The data might influence the USD price dynamics and produce short-term trading opportunities around the XAU/USD pair heading into the weekend. Nevertheless, the aforementioned fundamental backdrop suggests that the path of least resistance for the precious metal remains to the upside.

Gold constructive technical setup suggests that any corrective pullback could be bought into

The daily Relative Strength Index (RSI) remains in overbought territory and warrants some caution for the XAU/USD bulls, or positioning for any further appreciating move. That said, some follow-through buying beyond the $3,657-3,658 region should allow the Gold price to retest the all-time peak, around the $3,675 zone touched on Tuesday. The momentum could extend further and allow the commodity to conquer the $3,700 round-figure mark.

On the flip side, the Asian session low, around the $3,630 area, now seems to act as an immediate support ahead of the overnight swing low, around the $3,613-3,612 region and the $3,600 round figure. This is followed by the weekly low, around the $3,580 region, below which the Gold price could extend the corrective slide towards the $3,565-3,560 intermediate support en route to last Thursday's swing low, around the $3,510 region.