XAU/USD is charting a fresh course as it eyes further gains on the second consecutive day, holding steady at approximately $1,921 in the early stages of the Asian trading session on Tuesday. The pair finds its buoyancy from a declining US Dollar (USD), yet the allure of rising US Treasury yields may temper the precious metal’s ascent.
The US Dollar Index (DXY) struggles to regain ground around 104.60, facing an uphill battle against the backdrop of robust United States (US) bond yields. At the time of writing, the yield on the 10-year US Treasury bond stands at 4.30%.
Although strong economic data releases in August had initially weighed on Gold prices, recent developments present a more nuanced picture. Despite some fluctuations in the labor market in recent weeks, two robust reports, including the ISM Services PMI and Initial Jobless Claims, have exceeded market expectations. This mixed data landscape suggests that Gold prices may undergo a phase of consolidation.
Market participants are keenly awaiting the release of the US Consumer Price Index (CPI) data for August, as it carries substantial weight in the lead-up to the US Federal Reserve (Fed) monetary policy meeting in September.
This data release has the potential to offer fresh perspectives on the country’s inflation outlook, which could significantly shape investors’ perceptions of the USD.
In the preceding week, Fed policymakers expressed unwavering support for maintaining the current policy stance on September 20. Their decision stems from the backdrop of diminishing inflationary pressures and a labor market that appears to be loosening its grip.
However, the allure of Gold prices may be lessened amid expectations of a robust US Dollar (USD) performance. The Greenback is poised to weather the impact of higher interest rates more effectively, and its prospects may be further reinforced by positive economic data emanating from the US.
Market sentiment has been pricing in the likelihood of a 25 basis points (bps) interest rate hike by the Fed, with expectations for this move to materialize in either the November or December meetings. This more hawkish tone has the potential to curtail Gold prices’ upward trajectory.