• Gold retreats from a daily high of $2,529 after US inflation data boosts odds of a 25 bps Fed rate cut.
• Rising US Treasury yields and a stronger US Dollar weigh on the non-yielding metal with the 10-year T-note climbing to 3.655%.
• CME FedWatch Tool shows 71% chance of a 25 bps cut.

Gold fell late in the North American session, down by 0.18%, after hitting a daily peak of $2,529. US inflation data prompted traders to cut longs in the non-yielding metal due to increasing odds that the Federal Reserve (Fed) will kick off its easing cycle with a 25-basis-point (bps) interest rate cut. The XAU/USD trades at $2,511.

Sentiment remains positive after the US Bureau of Labor Statistics revealed August’s Consumer Price Index (CPI). Monthly headline inflation remained unchanged, while the monthly core, which excludes food and energy, ticked up a tenth.

Market participants pushed US Treasury yields higher amid fears that the Fed could be dissuaded from cutting interest rates by 50 basis points (bps) and instead might opt for 25 bps next week.

The US 10-year Treasury rose to 3.655%, up by one and a half bps. The Greenback was bolstered after the news, hitting a daily high of 101.82, according to the US Dollar Index (DXY). At the time of writing, the DXY is virtually unchanged at 101.68.

Investors had trimmed their odds for a 50 bps Fed rate cut, according to the CME FedWatch Tool. The chances are at 29%, while 25 bps lie at 71%.

The Presidential debate between Vice President Kamala Harris and former President Donald Trump was won by Harris, according to a CNN poll. 

In the geopolitical space, US Secretary of State Anthony Blinken and the UK’s David Lammy heightened concerns that the US and UK could grant Ukraine the ability to use weapons from Western nations to strike inside Russia.

Daily digest market moves: Gold price drops following US CPI release

• US Bureau of Labor Statistics’ CPI data revealed that headline inflation for August dipped from 2.9% to 2.6% YoY) as expected.
• However, US core CPI, which excludes volatile items and is considered a more accurate inflation gauge, remained unchanged at 3.2% YoY. On a monthly basis, core CPI rose from 0.2% to 0.3%, while headline CPI stood at 0.2% MoM.
• Data from the Chicago Board of Trade suggests the Fed is now expected to cut at least 98 basis points this year, down from 108 basis points a day ago, according to the December 2024 fed funds rate futures contract.
• Last Friday, Fed officials were dovish. New York Fed President John Williams said that cutting rates will help keep the labor market balanced, while Governor Christopher Waller said that “the time has come” to ease policy.
• Chicago Fed President Austan Goolsbee was dovish, saying policymakers have an “overwhelming” consensus to reduce borrowing costs.
• It is worth noting that Fed officials entered their blackout period ahead of the Federal Open Market Committee (FOMC) monetary policy meeting.
• Data from the Chicago Board of Trade indicates that the Fed is anticipated to cut at least 98 bps this year, based on the fed funds rate futures contract for December 2024.