Gold Price Forecast: XAU/USD declines below $3,450, Fed rate cuts bets might cap its losses

• Gold price drifts lower to around $3,440 in Monday’s Asian session, down 0.25% on the day. 

• Precious metal loses ground due to a firmer US Dollar and some profit-taking.

• Rising Fed rate cut expectations might help limit Gold’s losses. 

The Gold price (XAU/USD) trades in negative territory near $3,440 during the Asian trading hours on Monday. The precious metal retreats from an 11-week high due to some profit-taking. However, the potential downside might be limited as US inflation data reinforced expectations that the Federal Reserve (Fed) could cut interest rates this month.

A slew of US economic data last week, including US Gross Domestic Product (GDP) and US Initial Jobless Claims reports, underpinned the US Dollar (USD) and weighed on the USD-denominated commodity price. The US GDP grew at an annual rate of 3.3% in Q2, compared to the initial estimate of 3.0%, the US Bureau of Economic Analysis (BEA) showed Thursday. This figure came in better than the estimation of 3.1%.

Nonetheless, the US Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measurement, stayed higher than the central bank's target in July, but it didn't dash traders' hopes for a rate cut. The expectation of Fed rate cuts continues to support the yellow metal, as lower interest rates could reduce the opportunity cost of holding Gold. 

Traders are now pricing in nearly an 89% chance of a 25 basis points (bps) rate cut by the Fed at the September policy meeting, up from 85% odds before the US PCE data, according to the CME FedWatch tool. "We have expectations of a Fed rate cut, or potentially two, throughout this year, (which is) generally supportive for commodity prices across the board, including gold and silver," said David Meger, director of metals trading at High Ridge Futures.