Market update: gold prices surge on Fed rate cut expectations and lower US CPI

Gold prices sensitive to dovish rate expectations amid Fed rate cut hopes

Gold has appreciated, buoyed by last week’s lower US consumer price index (CPI )data, with the path of least resistance to the upside. The precious metal thrives in a low-interest-rate environment, and the mere anticipation of a rate cut from the Fed in September has re-awoken gold bulls.

The precious metal had been hovering around the 161.8% Fibonacci extension of the major 2020–2022 decline before the reacceleration to the upside. Gold prices subsided after reaching a new all-time high in May as China, the world's largest purchaser of the precious metal, dialled back its monthly purchases.

Gold (XAU/USD) daily chart

Gold techinical analysis

The gold outlook will likely depend on whether a combination of a lower dollar and US yields can reinvigorate bullish demand at already elevated prices. However, at the heart of the recent move is the greater expectation of a Fed rate cut in September. Markets have fully priced in the cut and have opened the door to two rate cuts by year-end, with a 50% chance of a third.

CME FedWatch tool showing rapid change in rate cut expectations

The weekly chart reveals the difficulty in pushing consistently above the prior high, as gold bulls failed to maintain upward momentum above $2450 an ounce.

Gold (XAU/USD) weekly chart

30-day GVZ technical analysis

Gold volatility has subsided now that tensions in eastern Europe and the Middle East have cooled, although fighting carries on. 30-day implied gold volatility (GVZ) has picked up more recently, but it will take a major catalyst from here to entice buyers to return in a meaningful way and sustain prices well above the all-time high.

30-day GVZ chart

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