• Gold continues slowly falling despite risk sentiment turning negative following weak US manufacturing data. 
• Overcrowded long positioning could be the reason the commodity is not rising as expected. 
• Technically, Gold has broken below the key $2,500 level – a bearish sign for the precious metal.     

Gold (XAU/USD) trades marginally lower on Wednesday, exchanging hands in the $2,490s. Market sentiment remains negative after the global sell-off triggered by the release of weak US manufacturing data on Tuesday, and fears about the Artificial Intelligence (AI) tech bubble bursting. 

Surprisingly, this has failed to translate into upside for Gold despite its safe-haven status, perhaps due to the overweight long positioning of Commodity Trading Advisors (CTA) and institutional investors. Gold actually finished Tuesday down over a quarter of a percent. 

Gold shrugs off increased probabilities of a 0.50% Fed rate cut

Gold also fails to capitalize on the significant rise in market-based probabilities of the US Federal Reserve (Fed) opting for a larger 0.50% interest rate cut at its September 18 meeting. 

Prior to the release of the weak US Manufacturing PMI print, the CME FedWatch Tool – which uses the 30-day fed fund Futures price to estimate chances of future Fed decisions – calculated the probability of the Fed making a 0.50% cut at around 31%. Today the probability has increased significantly to 41%. 

Such a big shift in expectations of interest rates falling would normally be expected to have a bullish effect on Gold since it lowers the opportunity cost of holding the non-interest-paying precious metal. However, on this occasion this does not seem to be the case. 

US employment metrics, scheduled for release during the remainder of the week, could still impact the outlook for US interest rates either way. This is particularly the case given recent comments by Federal Reserve (Fed) Chairman Jerome Powell, who highlighted risks to the labor market as now being more important than inflation in his speech at Jackson Hole. This week the data will put his remarks to the test.