Gold Rebounds Above $2,500 as 50 Basis Point Rate Cut Expectations Fade

Gold (XAU/USD) is trading above $2,500 on Tuesday, remaining within its recent range as traders assess the US monetary policy outlook and future interest rates, which have a big impact on gold’s performance.

Recent mixed US job numbers have put doubt on the Federal Reserve’s possibility of executing a 50 basis point (bps) rate drop at its September 18 meeting. This uncertainty harmed gold, which normally rises when interest rates decrease, making it more appealing as a non-interest-bearing investment. Following Friday’s Nonfarm Payrolls report, gold rose briefly before falling again. Although the report revealed fewer jobs added than predicted in August, the unemployment rate fell to 4.2% from 4.3%, and wage growth above expectations.

Overall, the statistics indicated a strengthening job market and rising wage inflation, causing market expectations for a 50 basis point rate cut to fall from approximately 40% to 30%, and then to 27% by Tuesday.

Following an initial rise, gold fell back to approximately $2,500 by the end of the week, before marginally falling into the $2,490s on Monday. On Tuesday, it managed to recover just above $2,500.

Investors are now looking forward to the August US Consumer Price Index (CPI) and Producer Price Index (PPI) data, which will be released on Wednesday and Thursday, respectively, for more signals on interest rate direction. Analysts are divided on how inflation data affects policy expectations, with some, such as Deutsche Bank’s Head of Macro Research Jim Reid, highlighting the importance of employment data above inflation.

“While Wednesday’s CPI and Thursday’s PPI may have an impact on the argument, employment data appears to be more important right now. “Friday’s mixed employment report presented arguments for both sides, making labor market views more important than inflation,” Reid remarked in his “Early Morning Reid” macro briefing.

On the geopolitical front, tensions in Gaza have risen following an Israeli airstrike on a displaced civilian camp, which killed 33 people in one day, according to Al Jazeera. This development makes a cease-fire agreement less plausible. Despite Ukraine’s recent successes in Russia’s Kursk region, Russian forces are still advancing on the crucial logistics hub city of Pokrovsk.

Overall, increased geopolitical tensions are likely to boost gold’s safe-haven appeal.