Gold (XAUUSD) prices slipped to around $3,350 during Monday’s early European trading session, pressured by a stronger US Dollar. However, expectations for a Federal Reserve rate cut in September and rising geopolitical tensions are limiting further downside, keeping the yellow metal in a tight but cautious trading range.
This dynamic highlights the ongoing tug-of-war between hawkish data-driven sentiment and dovish monetary policy expectations, a scenario keeping traders alert ahead of key economic releases this week.
Dollar Strength Weighs on Gold
The US Dollar gained traction early Monday, exerting pressure on the precious metal. A firmer Greenback often makes gold more expensive for holders of other currencies, leading to weaker short-term demand.
Despite this, traders remain cautious about placing aggressive bearish bets on gold, given the Federal Reserve’s evolving policy stance and upcoming macroeconomic data.
Powell’s Dovish Hints Support Sentiment
Federal Reserve Chair Jerome Powell’s speech at the Jackson Hole symposium on Friday injected optimism into the gold market. Powell acknowledged that the US economy is at a crossroads, facing “upside risks to inflation” while also grappling with employment concerns.
Importantly, Powell signaled that the Fed is open to cutting rates in September if economic conditions warrant. This boosted expectations of a 25 basis points rate cut, with CME FedWatch showing the probability rising to 85% from 75% before his remarks.
A lower interest rate environment generally benefits gold by reducing the opportunity cost of holding non-yielding assets, which keeps investors interested in the metal as both a hedge and a portfolio stabilizer.
Geopolitical Tensions Offer Safe-Haven Demand
Beyond central bank policy, geopolitical developments are adding a layer of support for gold.
The Russia-Ukraine conflict intensified over the weekend, with Ukrainian President Volodymyr Zelensky vowing to continue the fight for independence and sovereignty. His comments followed Russia’s accusations that Ukraine launched drone strikes on power and energy facilities, including a fire at a nuclear plant in the Kursk region.
Such developments continue to underpin safe-haven demand for gold, as investors seek protection from uncertainty. Any escalation in the conflict could prompt sharper rallies in the metal.
Market Eyes US GDP Data
The next key catalyst for the gold market will be the US Q2 GDP preliminary reading, scheduled for release on Thursday. Economists expect the economy to have grown at an annualized pace of 3.0%.
A stronger-than-expected report could boost the US Dollar and add downside pressure on gold prices.
A weaker report may reinforce the likelihood of a September rate cut, offering upward momentum for the yellow metal.
Traders will also monitor related data, including core inflation figures and jobless claims, to gauge the Fed’s potential policy path.
Other Market Influences
Fed Officials’ Comments
Recent remarks from St. Louis Fed President Alberto Musalem and Boston Fed President Susan Collins reflect a cautious stance. Musalem stressed that more data is needed before supporting a rate cut, citing inflation above the 2% target. Collins, while noting solid economic fundamentals, warned that tariffs could exacerbate price pressures, complicating the Fed’s path forward.
Physical Gold Demand
In key Asian markets, physical gold demand remained subdued last week due to price volatility. However, Indian jewelers have cautiously resumed purchases ahead of the upcoming festival season, which could provide mild support for physical demand in the near term.
Technical Outlook
From a technical perspective, gold is trading in a consolidation range between $3,300 and $3,400.
Immediate support levels: $3,320 and $3,300
Resistance levels: $3,370 and $3,400
Momentum indicators suggest a neutral-to-bullish bias, with traders waiting for clearer cues from US economic data before committing to larger positions.
Short-Term Outlook
In the short term, gold’s trajectory will depend heavily on the interplay between economic data and geopolitical risks. If US data comes in strong, it could dampen the appeal of gold by bolstering the Dollar. Conversely, weaker data combined with ongoing geopolitical tensions could fuel another rally toward $3,400 and beyond.
Investors should also keep a close eye on US labor market updates and any Fed commentary in the coming days, as these factors could refine expectations for the September policy meeting.p
Conclusion
Gold is navigating a complex landscape where Dollar strength, monetary policy expectations, and geopolitical uncertainty are pulling the market in different directions. While near-term pressure from the Greenback is evident, Powell’s dovish tone and safe-haven demand suggest that downside moves may remain limited.
As the week progresses, the US GDP data release will be a critical driver, potentially setting the tone for gold’s next decisive move. Until then, traders can expect range-bound price action between $3,300 and $3,400, with sharp moves likely if economic surprises emerge.
