Gold Retreats from Multi-Day Peak as Risk-On Sentiment Weighs, Fed Rate Cut Hopes Support XAU/USD

Gold Loses Small Intraday Gains in Risk-On Mood, Downside Looks to be Limited

Gold (XAU/USD) has pulled back from its recent multi-day high, struggling to hold onto the gains seen in the early part of the Asian session. The precious metal faces intraday selling pressure near the $3,375 region, as a favorable market sentiment and growing risk appetite undermine its status as a safe-haven asset.

Risk-On Sentiment Caps Gold’s Upside

The positive mood in the market, supported by the US-China trade ceasefire extension and optimism surrounding the US-Russia summit aimed at ending the war in Ukraine, has led to a risk-on environment. This has somewhat dampened demand for gold as a safe-haven asset, with investors turning to riskier assets.

Nevertheless, gold’s downside appears limited due to the rising Fed rate cut expectations, which continue to provide support for the non-yielding precious metal. Despite a strong market mood, the precious metal is still holding up as traders remain cautious, awaiting upcoming economic data.

Fed Rate Cut Expectations Weigh on USD, Support Gold

The US Dollar (USD) is facing continued weakness, driven by market sentiment that increasingly anticipates Fed rate cuts in September. Traders have been pricing in a reduction in borrowing rates, which has dampened USD bulls and lent support to gold. The growing expectations that the Fed may slash rates multiple times this year are making gold more attractive to investors, given its status as a non-yielding asset.

This backdrop has led to the emergence of dip-buying as traders remain optimistic about the precious metal's long-term potential. However, traders are also keeping a close eye on the US Producer Price Index (PPI) report due later today, as any softening in inflation could strengthen the case for further Fed rate cuts, supporting the bullish outlook for gold.

Outlook for Gold (XAU/USD)

While gold has pulled back from its recent highs, the upward momentum is far from over, as expectations for Fed rate cuts continue to support the precious metal. Gold bulls are likely to continue dominating the market, with any significant pullbacks likely viewed as buying opportunities. However, the outcome of the PPI report and other economic data could serve as catalysts for the next move in XAU/USD.

With the ongoing divergence in Fed policy and the USD's weakness, gold remains in a favorable position, and downside risks appear limited in the near term.