Gold sticks to gains as strong US PPI-inspired USD rally falters amid Fed rate-cut bets

• Gold price edges higher as the strong US PPI-inspired USD rally lacks follow-through buying.
• Bets for an imminent Fed rate cut in September cap the USD and support the commodity.
• The upbeat market mood keeps the XAU/USD bulls on the defensive ahead of the US data.

Gold (XAU/USD) adds to modest Asian session gains and recovers a part of the previous day’s losses to a two-week low, though it lacks bullish conviction. The US Dollar (USD) attracts fresh sellers and stalls Thursday’s strong Producer Price Index (PPI)-inspired gains as traders seem convinced that the US Federal Reserve (Fed) will resume its rate-cutting cycle in September. This, in turn, is seen as a key factor that helps revive demand for the non-yielding yellow metal.

Meanwhile, fresh inflation jitters seem to have tempered market expectations for a more aggressive policy easing by the Fed. This, along with the prevalent risk-on environment, is holding back traders from placing aggressive bullish bets around the Gold price. Hence, it will be prudent to wait for strong follow-through buying before confirming that the XAU/USD pair has bottomed out. Traders now look to the US macroeconomic data for some impetus heading into the weekend.

Daily Digest Market Movers: Gold looks to build on intraday gains amid renewed USD selling bias

• Traders trimmed their bets for a more aggressive policy easing by the Federal Reserve following the hotter-than-expected release of the US Producer Price Index on Thursday. The US Bureau of Labor Statistics reported that the headline PPI accelerated from the 2.4% YoY rate to 3.3% in July, surpassing expectations of a 2.5% by a wide margin.
• The US Dollar rebounded sharply from the vicinity of its lowest level since July 28, touched on Wednesday, and triggered an intraday turnaround of around $45 in the Gold price. The USD recovery, however, runs out of steam during the Asian session on Friday as traders are still pricing in a 90% chance that the Fed will cut interest rates in September.
• Moreover, the CME Group’s FedWatch Tool indicates the possibility of two 25-basis-point Fed rate cuts by the end of this year.  This, in turn, keeps a lid on any further USD appreciation and acts as a tailwind for the non-yielding yellow metal during the Asian session. However, the prevalent risk-on environment caps gains for the safe-haven commodity.
• An extension of the US-China tariff truce for another three months eased concerns about a full-blown trade war between the world’s two largest economies. Furthermore, hopes that Friday’s US-Russian summit will increase the chances of ending the prolonged war in Ukraine remain supportive of the bullish sentiment across the global financial markets.
• Traders now look forward to the US economic docket – featuring the release of monthly Retail Sales figures, the Empire State Manufacturing Index, followed by the University of Michigan Consumer Sentiment and Inflation Expectations Index. The data might influence the USD and provide some impetus to the XAU/USD pair heading into the weekend.
• Nevertheless, the precious metal remains on track to register losses for the first time in three weeks, and the lack of strong follow-through buying suggests that the path of least resistance remains to the downside. Hence, any subsequent move up could be seen as a selling opportunity and runs the risk of fizzling out rather quickly.

Gold seems vulnerable while below the 100-hour SMA pivotal resistance, near the $3,355 area

The recent repeated failures to build on momentum beyond the 100-hour Simple Moving Average (SMA) and the overnight slide favor the XAU/USD bears. Moreover, oscillators on hourly charts are holding in bearish territory and have just started gaining negative traction on the daily chart. This, in turn, validates the near-term negative outlook for the Gold price.

Hence, any attempted recovery might confront a stiff barrier and remain capped near the 100-hour SMA, currently pegged near the $3,355 region. The latter should now act as a pivotal point, which, if cleared, could lift the Gold price back to the overnight swing high, around the $3,375 zone. The momentum could extend further towards reclaiming the $3,400 mark.

On the flip side, the $3,330 area, or a two-week low touched on Thursday, seems to have emerged as an immediate support. Some follow-through selling could make the Gold price vulnerable to accelerate the slide to the $3,300 mark. Acceptance below the latter would reaffirm the near-term bearish bias and set the stage for a further depreciating move.