Gold slips more than 1% on easing safe-haven appeal; analysts warn of further downside

Gold prices fell more than 1% on Monday on easing safe-haven appeal for the precious metal. 

“The sharp intraday fall is sponsored by a positive risk tone, which tends to undermine demand for the traditional safe-haven bullion,” Haresh Menghani, editor at FXstreet, said in a report. 

Menghani added that investors have been holding back from placing aggressive bets on gold. 

At the time of writing, the December gold contract on COMEX was at $3,437.40 per ounce, down 1.5% from the previous close. 

Investors remain cautious due to ongoing trade uncertainties, particularly with the US tariff deadline on China approaching on Tuesday.

Expectations of more significant interest rate cuts by the Federal Reserve (Fed) than initially anticipated are boosting the US dollar and helping to stem losses for non-yielding gold.

Risk-on sentiment

Optimism for a resolution to the conflict in Ukraine, spurred by the prospect of a meeting between US and Russian leaders, led to a rise in Asian stock markets and US equity futures at the beginning of the week.

A new week begins with significant selling pressure on safe-haven gold, triggered by this development, according to Menghani.

However, uncertainty regarding the US-China tariff truce, set to expire on August 12, provides some backing for the precious metal.

This week, attention will be on US consumer prices, expected to rise 0.3% to an annual rate of 3.0%, moving further away from the Fed's 2% target.

Analysts anticipate tariffs will contribute to this increase.

“If US inflation numbers, as they have in recent months, turn out to be weaker than expected and additionally weigh on US interest rate expectations, the chances are good that the gold price will receive a new upward push,” Thu Lan Nguyen, head of FX and commodities research at Commerzbank AG, said in a report. 

Fed rate cut expectations

Due to a weakening US labour market, as indicated by the July Nonfarm Payrolls report, investors now anticipate the US central bank will restart its rate-cutting cycle in September, with at least two 25-basis-point cuts expected by year-end.

St. Louis Fed President Alberto Musalem stated last week that the US central bank faces a risk of missing targets for both inflation and employment, with potential downside risks to job growth. 

Musalem also suggested that the majority of the inflationary impact from tariffs is likely to diminish.

On Saturday, Fed Governor Michelle Bowman expressed her strengthened conviction that three interest rate cuts will likely be appropriate this year, citing recent weak labour market data as a reinforcement of her concerns about labour market fragility.

Nguyen added:

Prices seem vulnerable to downside

Spot gold prices fell below the $3,382 confluence due to an intraday decline on Monday.

This key level consists of the 100-hour Simple Moving Average (SMA) and the lower bound of a short-term ascending channel, according to FXstreet.

Oscillators on the chart are showing increasing negative momentum, which supports the expectation of further depreciation, FXstreet said.

Any subsequent slide in gold prices is likely to find strong support around the $3,353-$3,350 range, FXstreet’s Menghani said.

On the flip side, the $3,400 mark remains a strong barrier for gold. However, a break above last week's high of $3,409-$3,410 would invalidate the negative outlook and push prices towards $3,422-$3,423.