Gold edges below $2,500, USD recovery weighs

NEW YORK (September 2) Gold (XAU/USD) edges down and tests $2,500 on Monday as the recovery in the US Dollar (USD) over recent days puts pressure on the precious metal. Gold is negatively correlated to USD, in which it is mostly priced and traded.  

Gold’s wings clipped by recovery in US Dollar 

Gold’s price is facing a little bit of a headwind from the US Dollar (USD) at the start of the new week after the Greenback bounced back from the year-to-date lows that reached last Tuesday when the US Dollar Index (DXY) touched down at 100.52. It is now trading back up in the 101.60s after the release of July’s US Personal Consumption Expenditures (PCE) data on Friday showed inflation unchanged from the previous month. This, in turn, reassured markets that the US economy is probably heading for a “soft” rather than a “hard” landing. 

The outlook for US interest rates, another major driver for the precious metal, remains about the same, with the probabilities of a 50 basis point (bps) cut in September still just above 30% and a 25 bps cut fully priced in, according to the CME FedWatch Tool. 

Trading conditions will be thin on Monday as both the US and Canada are on holiday due to Labor Day. Employment data out this week – culminating in Nonfarm Payrolls (NFP) on Friday – however, will be a key deciding factor as to whether the Federal Reserve (Fed) will opt for a big half percent cut or a more standard quarter percent reduction.  

FXStreet