Gold extends three-week rally as softer US data revives rate-cut odds

By Daniela Sabin Hathorn, senior market analyst at Capital.com

• Softer U.S. data revives Fed cut bets, pressuring the dollar and real yields—tailwinds that powered gold’s three-week run.
• A late-August breakout above a symmetrical triangle added momentum; near-term bias for XAU/USD remains higher while USD stays soft.

Gold, silver and natural gas are on a solid bullish run for the past three weeks as traders price in a higher chance of rate cuts from the Federal Reserve. The initial trigger was the much-softer-than-expected jobs data in July, which also saw downward revisions in the payrolls data from previous months. Hopes for an outsized 50bp September cut briefly surged, then faded after an upside surprise in July PPI, suggesting consumer prices could see continued upside pressure in the near future. The odds of a larger cut are now back, albeit marginally. This time, a softer-than-expected reading in the August jobs data is the culprit.

The shifting outlook has dampened the outlook of the US economy, weighed on the dollar and supported dollar-denominated commodities. Gold has been a clear outperformer. The precious metal is up almost 8% since breaking above a symmetrical triangle pattern at the end of August. However, as a non-yielding asset, it has one key weakness: it doesn’t generate any income. Therefore, its outlook hinges on the belief that it will continue to appreciate as a way of offering value to portfolios.

For now, the path of least resistance remains to the upside, and the outlook is bullish. Lower rates will continue to benefit gold, as will a weaker dollar. Uncertainty, especially around the Fed’s independence, is also a key tailwind for the precious metal. If diversification away from the dollar as the dominant reserve asset inches forward, that could underpin a more durable upside extension.