• Gold trades within the guard rails of a familiar range around the key $2,500 barrier. 
• Traders are weighing up the possibility of the Fed going ahead with a larger-than-usual 50 bps cut to interest rates. 
• Such a cut would be bullish for Gold given it is a non-interest paying asset. 

Gold (XAU/USD) is exchanging hands at around the $2,500 mark on Tuesday, sticking within its familiar range of the last few weeks as traders assess the outlook for monetary policy and the future path of interest rates in the US, a key performance indicator for Gold. 

Recent mixed US jobs’ data brought into doubt market expectations of the Federal Reserve (Fed) making an above-standard 0.50% (50 bps) cut to its fed funds rate at the September 18 meeting. This, in turn, had a negative impact on Gold, which tends to appreciate the more interest rates fall because that increases its attractiveness to investors as a non-interest paying asset. 

Gold: Focus on US inflation and geopolitics 

Gold rose then fell after the Nonfarm Payrolls report on Friday, as although the headline figure showed the US economy added fewer jobs than expected in August, the Unemployment Rate fell to 4.2% from 4.3% as anticipated, and wage growth increased above forecasts. 

Taken as a whole, the report indicated that the labor market was not in as bad shape as first thought and that wage inflation was rising. As a result, market-based probabilities of the Fed cutting interest rates by 0.50% actually fell from around 40% to around 30%. 

After an initial spike, Gold quickly rolled over and ended the week back down at around the $2,500 mark before inching slightly lower into the $2,490s on Monday. On Tuesday, Gold has edged back just above $2,500. 

Investors now await US Consumer Price Index (CPI) and Producer Price Index (PPI) data for August, which will be out on Wednesday and Thursday, respectively, for more intel on the outlook for interest rates. Although analysts are mixed as to how much of an impact inflation data will now have on policy expectations, some, such as Deutsche Bank’s Head of Macro Research, Jim Reid, play down the importance of inflation compared to employment data.