Gold (XAU/USD) is trading slightly lower around $3,365 in early Asian trade on Monday, facing renewed pressure from a firmer US Dollar. However, growing expectations of a Federal Reserve rate cut in September, following dovish remarks from Fed Chair Jerome Powell, may provide a buffer against deeper losses in the precious metal.
Speaking at the Jackson Hole symposium on Friday, Powell suggested the Fed is open to lowering interest rates as early as next month, though he acknowledged that persistent inflation could complicate the decision-making process. “The US economy is facing a challenging situation,” Powell said, pointing to upside risks to inflation and growing downside risks in the labor market.
Market shifts further toward rate cut pricing
According to the CME FedWatch tool, the probability of a 25 basis-point cut in September has risen to nearly 85%, up from 75% before Powell’s speech. While the Dollar has remained broadly resilient, lower interest rates reduce the opportunity cost of holding non-yielding assets like gold, providing a medium-term tailwind for bullion prices.
Geopolitical tensions offer underlying support
Rising geopolitical tensions between Russia and Ukraine are also likely to lend support to safe-haven demand. Ukrainian President Volodymyr Zelensky reaffirmed the country’s resolve to defend its sovereignty in a national address on Independence Day, while Russia accused Ukraine of drone strikes on key energy infrastructure, including a nuclear power plant in the western Kursk region.
These developments continue to inject uncertainty into global markets, bolstering the case for risk-averse positioning, which typically benefits gold.
All eyes on Q2 GDP data
Looking ahead, traders will focus on Thursday’s release of the US Q2 Gross Domestic Product (GDP) preliminary estimate. The economy is projected to have grown at an annualized pace of 3.0%. A stronger-than-expected print could reinforce USD strength and weigh on gold in the near term, while a miss might support the case for a September rate cut and offer relief to XAU/USD.
