Gold's record rally faces test as focus shifts to US data, Fed rate cuts

Upcoming US employment data, purchasing managers' index (PMI) readings from major economies, and speeches of several Federal Reserve officials will also be watched, analysts said

Gold prices, which scaled record highs in the domestic market last week, are likely to face a crucial test in the coming days with investors watching US macroeconomic data and geopolitical tensions for cues on the trajectory of the precious metal, analysts said.

Upcoming US employment data, purchasing managers' index (PMI) readings from major economies, and speeches of several Federal Reserve officials will also be watched, they said.

"In the week ahead, focus will be on the manufacturing/services PMI data from across regions and the US employment data. Festive demand in India and uncertainty over the Russia-Ukraine peace deal as well as straining India-US relations, will also drive market sentiment," Pranav Mer, Vice President, EBG -- Commodity & Currency Research, JM Financial Services, said.

On Friday, the most-traded gold futures for October contract soared to an all-time high of Rs 1,04,090 per 10 grams on the Multi Commodity Exchange (MCX) before settling near record levels.

"Gold prices zoomed to an all-time high of Rs 1,04,090 per 10 grams in the domestic market, as the US dollar continued to consolidate, despite better-than-expected economic numbers released from the US, while the PCE inflation data rose in line with expectations," Mer said.

Pranav Mer added that while some profit booking cannot be ruled out, the overall bias for bullion remains positive. "Gold prices may find support with an upside potential of Rs 1,08,000-1,10,000 per 10 grams in the short-term," he said.

Supporting the rally, the rupee's slide against the US dollar has further lifted domestic prices.

"In the domestic market, a weakening rupee is keeping gold prices elevated, with rates likely to stay above Rs 1 lakh per 10 grams," said Aksha Kamboj, Vice President - India Bullion and Jewellers Association and Executive Chairperson at Aspect Global Ventures.

On Friday, the rupee breached the 88-mark for the first time and closed at an all-time low of 88.09 against the US dollar, registering a sharp decline of 51 paise amid a massive outflow of foreign funds and heightened tensions over a trade deal between India and the US.

Meanwhile, Kamboj highlighted that a US appeals court has declared President Donald Trump's tariffs illegal, and any further developments on this issue will be closely monitored by the traders. Additionally, continued weakness in the US dollar may also lend further support to bullion.

"On the economic front, all eyes will be on the US non-farm payrolls report due on Friday, which will play a crucial role in shaping expectations around a potential interest rate cut by the Fed's September 16-17 policy meeting," she said.

In the international markets, Comex gold futures for the December contract settled 1.20 per cent higher at USD 3,530.70 per ounce in New York on Saturday, just shy of its historic peak of USD 3,534.10 per ounce hit on August 8.

Prathamesh Mallya, DVP-Research, Non-Agri Commodities and Currencies, Angel One said the "Comex gold futures have risen from lows of USD 3,313 per ounce as on August 20, to rally towards USD 3,530.70 per ounce as on August 30, a rally of around 6.6 per cent."  Fed Chair Jerome Powell has recently flagged risks to the labour market as justification for potential monetary policy easing.

Political uncertainty has also cast a shadow, with Trump's public attempt to oust Fed Governor Lisa Cook intensifying concerns over the central bank's independence.

However, Mallya cautioned that after a steep rally, some correction could be on the cards.

"In the week ahead, gold prices might see some correction as prices are at its highest points in the international as well as domestic markets, while the dollar index is also near its crucial make or break point of 100," Mallya said.

Analysts said traders should brace for heightened volatility in gold. While the overall outlook remains constructive on expectations of monetary policy easing and robust festive demand in India, near-term corrections cannot be ruled out.