Gold is seen consolidating last week’s strong bullish run to the all-time peak.A modest USD uptick and a positive risk tone cap the upside for the commodity.Fed rate cut bets could limit the USD gains and support the non-yielding metal.

Gold (XAU/USD) extends its sideways consolidative price move through the Asian session on Monday and remains well within striking distance of the $3,600 mark, or the all-time high touched last week. The US Dollar (USD) benefits from a broadly weaker Japanese Yen (JPY) and moves away from its lowest level since July 28, set in reaction to the disappointing US Nonfarm Payrolls (NFP) report on Friday. This, along with a generally positive tone around the equity markets, acts as a headwind for the safe-haven precious metal.

However, expectations for a more aggressive policy easing by the Federal Reserve (Fed), including small bets for a jumbo rate cut this September, keep a lid on any meaningful USD appreciation and offer some support to the non-yielding Gold. Meanwhile, central banks continue to be net buyers of the commodity even in the current price range. This could further lend some support to the precious metal and help limit any corrective slide. Traders now look to the US inflation figures due for release during the latter part of the week.

Daily Digest Market Movers: Gold bulls not ready to give up amid supportive fundamental backdropThe US Nonfarm Payrolls report released on Friday showed that the economy added just 22,000 jobs in August, missing market expectations by a big margin. Moreover, revisions to earlier prints revealed the economy lost 13K jobs in June, marking the first monthly decline since December 2020 and pointing to deteriorating US labor market conditions.Additional details revealed that the US Unemployment Rate edged higher to 4.3% from 4.2% in July, as anticipated, while the Labor Force Participation Rate ticked up to 62.3% from 62.2%. Finally, annual wage inflation, as measured by the change in the Average Hourly Earnings, declined to the 3.7% YoY rate in August from 3.9% in the previous month.Traders were quick to react and are now pricing in a small possibility of a jumbo rate cut by the Federal Reserve in September. Moreover, market participants see a greater chance that the US central bank might lower borrowing costs three times by the end of this year, which, in turn, pushed the Gold price to the $3,600 mark, or a fresh all-time high on Friday.The US Dollar kicks off the new week on a positive note and recovers a part of the post-NFP slump to over a one-month low. Adding to this, the upbeat market mood acts as a headwind for he safe-haven precious metal at the start of a new week. Traders now look to the release of the latest US inflation figures due later this week for a fresh impetus.Gold constructive technical setup suggests that any corrective pullback is likely to get bought into

The Relative Strength Index (RSI) is holding well above the 70 mark on the daily chart and points to overbought conditions. This makes it prudent to wait for some near-term consolidation or a modest pullback before the XAU/USD bulls start positioning for an extension of the recent breakout momentum through a multi-week-old trading range.

Any corrective decline, however, is more likely to attract fresh buyers near the $3,545 region. This should help limit the downside near the $3,510-3,500 region. A convincing break below the latter, however, could drag the Gold price to the trading range resistance breakpoint, around the $3,440 region, which should act as a strong near-term base.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates.
When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money.
When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions.
The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system.
It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.