Gold price surges to record highs above $2,550 as Fed rate cut expectations mount – FXStreet

• Gold hit a new record high after U.S. jobless claims and producer inflation data backed up a possible Fed interest rate cut.
• The US Dollar Index (DXY) fell 0.29% and Treasury yields rose, with the 10-year Treasury note at 3.689%.
• The CME FedWatch tool indicates there is an 85% chance that the Fed will cut rates by 25 bps, making gold even more attractive in a low interest rate environment.

Gold prices rose to an all-time high above $2,550 after US data confirmed that the Federal Reserve is likely to cut interest rates next week. At the time of writing, XAU/USD is trading at $2,552, up 1.67%, having rebounded from an intraday low of $2,511.

Market sentiment was upbeat as Wall Street rose. The U.S. Labor Department said initial claims for unemployment benefits rose as expected for the week ended Sept. 7, beating the previous week's figure. Other data showed prices charged by producers, known as factory inflation, rose more than expected due to rising costs of services.

After the data was released, the US Dollar Index (DXY), which tracks the greenback against other currencies, plummeted to an intraday low of 101.44, down 0.29%, while Treasury yields rose, with the 10-year Treasury note rising 3.5 basis points (bps) to 3.689%.

“Interest rates are trending lower, making gold more attractive. I think rate cuts are likely to become more frequent rather than larger,” the source quoted by Reuters said.

According to the CME FedWatch tool, market participants rate the Fed at an 85% chance of cutting interest rates by 25 basis points, and a 15% chance of cutting rates by 50 basis points.

US economic data strengthened expectations of the Fed's first interest rate cut, while the European Central Bank's (ECB) decision to cut interest rates by 0.25 percentage points prompted EUR/USD to rise, weakening the value of the US dollar.

Gold bullion traders will be examining a University of Michigan consumer sentiment survey released on Friday.

Daily Digest Market Movement: Gold prices surge on US employment and inflation data

• The Bureau of Labor Statistics (BLS) reported that initial claims for unemployment insurance for the week ending September 7 increased by 230,000 as expected, up from 228,000 the previous week.
• The Producer Price Index (PPI) rose 1.7% year-on-year in August, slightly below the 1.8% expected, while core PPI rose to 2.4% from 2.3%, below the 2.5% expected.
• On a monthly basis, both headline and core PPI increased month-over-month. Headline PPI increased 0.2%, beating expectations of 0.1%, while core PPI increased 0.2% to 0.3%.
• Today's data, along with Wednesday's Consumer Price Index (CPI) confirm a 25bps rate cut, sending gold prices higher ahead of the Fed meeting.
• The Fed is expected to cut rates by at least 98 basis points this year, according to December 2024 federal funds rate futures contracts, down from 108 basis points a day earlier, according to data from the Chicago Board of Trade.

Technical Outlook: Gold prices hold above $2,500 despite losses

Gold prices surged to an all-time high (ATH), surpassing previous ATHs of $2,531 and $2,550. The upward momentum accelerated despite the inverse correlation between gold bullion prices and U.S. Treasury yields breaking down intraday.

If XAU/USD continues its uptrend, the next resistance will be psychologically important levels like the $2,575 level, followed by the $2,600 level.

To turn around, the sellers would need to break out of $2,550 and then surpass the Aug. 20 high of $2,531 in order to reach $2,500. If the price continues to fall, the next support is the Aug. 22 low of $2,470, followed by the May 20 high of $2,450.