Fed interest rate cut expectations and falling bond yields support gold's upward rebound, waiting for short-term stress testing

Gold (XAU/USD) rallied quickly after hitting a two-week low of $3,323 in Asian session on Monday and hit a new intraday high. Key factors driving gold prices stronger are the decline in US Treasury yields and market bets that the Federal Reserve will resume its rate-cutting cycle in September.

The CME Fed Watch tool suggests at least two 25 basis point rate cuts before the end of the year.

Demand for safe-haven assets has also been supported in part by investor positioning ahead of Mr. Trump's meetings with Ukrainian president Volodymyr Zelensky and European leaders, which are widely seen as indirectly supportive of gold by promoting a peace plan.

However, the dollar strengthened modestly on the back of recent data. US PPI recorded its fastest monthly gain since 2022 in July, dampening expectations of a big 50 basis point rate cut. In addition, US consumer confidence unexpectedly fell, but inflation expectations rose, indicating that price pressures remain, further weakening the momentum for gold's sharp rise.

Investors are generally on the sidelines, awaiting Fed meeting notes on Wednesday and Powell's Jackson Hole speech for clearer policy guidance.

"The rally in gold prices has mainly benefited from the decline in US Treasury yields and market bets on a September rate cut, but the resilience of the US dollar and improved risk sentiment are limiting gold's gains." - Commodity analyst at an international investment bank

From the technical graphics, the price of gold rallied quickly after gaining support at $3,323 (61.8% Fibo retracement level), breaking through the 4-hour 200 moving average (about $3,346). If it can continue to stand above $3,355 (50% Fibo retracement level), it is expected to explore the $3,372-3,374 area in the future, and further challenge the $3,400 integer mark, and even approach the monthly high of $3,408-3,410.

Lower support is at $3,346 (the 200 moving average) and $3,323 (the key retracement level). If it falls below this level, gold could fall back to $3,300 again, and even extend to the $3,282-3,268 range, which is near the end-June low. Overall, the short-term technical side remains mildly bullish, but the market still needs to confirm a breakout.

Editorial opinion:

The current gold is in a critical stage of the long-short game. The Federal Reserve's interest rate cut expectations are supported by the decline in US bond yields, but the strength of the US dollar and the recovery of risk appetite are suppressed. Overall, the short-term gold is still dominated by a news-driven shock rebound, and the real breakthrough direction needs to wait for the policy signal after the Jackson Hole meeting.