Gold prices eased 0.2% to $2,654.9 during Monday's trading in Asia, despite positive market sentiment driven by new Chinese stimulus measures as traders remain cautious ahead of Federal Reserve Chair Jerome Powell’s speech later in the day.
After last week's rally to record highs of $2,686, gold prices have corrected, pressured by profit-taking and the strength of the U.S. Dollar (USD). The USD gained following a cooldown in the U.S. core Personal Consumption Expenditures (PCE) Price Index, which has boosted market speculation of a significant interest rate cut by the Federal Reserve in November.
According to the CME Group’s FedWatch Tool, markets currently see a 52% chance of a 50 basis points (bps) rate reduction next month.
Friday’s PCE data, the Federal Reserve’s preferred inflation measure, showed core inflation ticking down to 0.1% month-on-month and 2.7% year-on-year, inching closer to the central bank’s 2% target.
However, gold failed to capitalise on the USD’s weakness, as investors locked in profits and adjusted positions ahead of this week’s U.S. Nonfarm Payrolls report.
Gold prices also face pressure from month-end and quarter-end flows, with traders balancing portfolios in response to broader market trends.
Despite the recent correction, rising geopolitical tensions in the Middle East and additional Chinese stimulus measures are providing some underlying support to gold. Over the weekend, Israel continued strikes in Lebanon, claiming the killing of another senior Hezbollah figure, intensifying the conflict with Iran-backed forces.
China also introduced fresh economic stimulus, urging banks to lower mortgage rates for existing home loans by 50 bps by the end of October.
However, disappointing Chinese manufacturing data tempered market optimism, with the Caixin Manufacturing PMI returning to contraction at 49.3 in September, down from 50.4 in August.