Gold Price Forecast: XAU/USD drifts lower to near $2,650, potential downside seems limited

• Gold price loses momentum to around $2,650 in Monday’s early Asian session. 

• Weaker Chinese economic data undermine the Gold price. 

• The US PPI report and Middle East geopolitical risks could support the yellow metal. 

Gold price (XAU/USD) edges lower to $2,650, snapping the two-day winning streak during the early Asian session on Monday. The downbeat Chinese economic data and firmer Greenback weigh on the precious metal. Nonetheless, the prospects of further interest rate cuts this year and safe-haven demand might cap its downside. 

China's deflation pressure increased in September. The Consumer Price Index (CPI) inflation unexpectedly eased in September, while the Producer Price Index (PPI) fell more than expected during the same period, highlighting the need for more stimulus measures. The persistent deflationary pressure in China is likely to exert some selling pressure on the yellow metal, as China is the world's largest Gold consumer. 

The US Producer Price Index (PPI) was unchanged in September, indicating a still-favorable inflation outlook and supporting the bets of the Federal Reserve (Fed) rate cut in November. "The PPI numbers leaned friendly for the precious metals market bulls and suggest the Fed remains on track for two quarter-point interest rate cuts this year," said Jim Wyckoff, senior market analyst at Kitco Metals.

Additionally, the rising geopolitical tensions in the Middle East have triggered the fear of wider war in the region, boosting the traditional safe-haven assets like the Gold price. On Sunday, at least four Israeli soldiers were killed and more than 60 people were injured by a drone attack in north-central Israel, per CNN. The number of injuries makes the attack one of the bloodiest on Israel since the war started last October. Hezbollah has claimed responsibility for the attack.