Gold rallies to over four-month top amid Fed rate cut bets, weaker USD, geopolitical risks

• Gold prolongs its uptrend and climbs back closer to the all-time peak on Monday.

• Fed rate cut bets keep the USD depressed and benefit the non-yielding commodity.

• Escalating geopolitical tensions also lend support to the safe-haven XAU/USD pair.

Gold (XAU/USD) gains strong follow-through traction at the start of a new week – marking the sixth day of a positive move in the previous seven – and jumps to the $3,486 area, or the highest level since April 22, during the Asian session. The US inflation data released on Friday did little to dent market expectations that the Federal Reserve (Fed) would cut interest rates this month, which, in turn, continues to benefit the non-yielding yellow metal.

Furthermore, growing concerns about the Fed’s independence keep the US Dollar (USD) depressed and turn out to be another factor acting as a tailwind for Gold. Adding to this, escalating geopolitical tensions contribute to the positive momentum and favor the XAU/USD bulls. Traders now look forward to important US macro releases scheduled at the start of a new month for cues about the Fed's rate cut path, which should influence the commodity.

Daily Digest Market Movers: Gold bulls retain control amid weaker USD and global flight to safety

The US Bureau of Economic Analysis reported on Friday that the annual Personal Consumption Expenditures (PCE) Price Index held steady at 2.6% in July. Moreover, the core PCE Price Index, which excludes volatile food and energy prices, edged higher to 2.9% during the reported month from June's rise of 2.8%, matching analysts' estimates.

The data reaffirmed bets that the US Federal Reserve will cut interest rates this month. According to the CME FedWatch Tool, traders are currently pricing in an 87% chance that the Fed will lower borrowing costs by 25 basis points at the end of a two-day meeting on September 174 and deliver at least two interest rate cuts by the year-end.

US President Trump dismissed Fed Governor Lisa Cook over alleged mortgage fraud. Cook filed a lawsuit and refused to step down, raising concerns about the central bank's autonomy. Cook's departure would give Trump another appointment to the Fed's seven-member board and command a majority for the first time in decades.

On the geopolitical front, Russia carried out deadly strikes on Ukrainian cities last week and launched 598 drones and decoys, along with 31 missiles. Ukrainian President Volodymyr Zelenskyy vowed to retaliate by ordering strikes deep inside Russia. The latter said on Sunday that it had downed 112 Ukrainian drones over the past 24 hours.

Meanwhile, Israeli forces pounded the suburbs of Gaza City from the air and ground. Israeli Defence Minister Israel Katz said that the spokesperson of Hamas’ armed wing, Abu Ubaida, was killed. This keeps geopolitical risks in play, which turns out to be another factor benefiting the safe-haven Gold and contributing to the momentum.

The US markets will be closed on Monday in observance of Labor Day. Traders might also refrain from placing aggressive directional bets ahead of this week's important US macro releases scheduled at the start of a new month, including the closely-watched US Nonfarm Payrolls (NFP) report on Friday.

Gold seems poised to appreciate further while above $3,440 resistance breakpoint

From a technical perspective, Friday's breakout through the $3,440 supply zone, or the top boundary of over a three-month-old trading range, was seen as a fresh trigger for the XAU/USD bulls. Moreover, oscillators on the daily chart have been gaining positive traction and back the case for a further appreciating move. However, the daily Relative Strength Index (RSI) has moved to the verge of breaking into the overbought territory, suggesting that Gold could pause for a breather near the $3,500 psychological mark, or the all-time peak touched in April.

On the flip side, any corrective pullback might now find decent support near the $3,440 resistance breakpoint. Any further slide could be seen as a buying opportunity and is more likely to remain limited near the $3,400 round figure. The latter should act as a strong near-term base for the Gold, which, if broken decisively, might prompt some technical selling and pave the way for deeper losses. The XAU/USD might then decline further towards the $3,372 intermediate support en route to the $3,350 region.