Gold Prices Forecast: Holding Pattern Ahead of PCE Report Release

Gold Price and PCE Report

Gold prices are experiencing a holding pattern, remaining close to the 50-day moving average at $2032.71. This cautious stance comes as the market anticipates critical U.S. inflation data and comments from Federal Reserve officials.

At 12:00 GMT, XAU/USD is trading $2030.08, down $4.38 or -0.22%.

Interest Rate Speculations and Gold

Market expectations for rate cuts have been tempered, with speculation now leaning towards three quarter-point reductions in 2024, down from the five cuts anticipated earlier. Federal Reserve officials have hinted at the possibility of interest rate cuts later this year, though the 2% inflation target remains unmet. The impact of sustained higher interest rates is evident, as it diminishes the appeal of non-yielding assets like gold.

Gold ETFs and Physical Demand

Despite a marginal change in spot gold prices month-on-month and a 1.2% decrease in January, the consistent physical demand from major markets like India, China, and central banks provides a stable base for gold prices. Conversely, gold ETFs, particularly SPDR Gold Trust, are witnessing their lowest levels since July 2019.

U.S. Treasury Yields and PCE Data

U.S. Treasury yields are slightly up as investors await the personal consumption expenditures (PCE) report. The PCE, a key inflation measure for the Fed, is anticipated to show a 0.3% monthly increase and a 2.4% annual rise. A higher-than-expected PCE reading could signal persistent inflation, potentially keeping interest rates high.

Fed’s Stance and Dollar Performance

Federal Reserve officials, including New York Fed President John Williams, maintain that more efforts are needed to achieve the 2% inflation target. The market now expects the first rate cut in June, a shift from the initially predicted March. The dollar is tracking towards monthly gains, with the upcoming PCE data potentially influencing interest rate outlooks.

Short-term Market Forecast

Given the current economic indicators and Federal Reserve’s stance, a bullish short-term forecast for gold seems less likely. If the PCE report indicates higher-than-expected inflation, this could strengthen the dollar and further dampen the attractiveness of gold. The market may lean towards a bearish outlook for gold in the short term, influenced by anticipated higher interest rates and a stronger U.S. dollar.

Technical Analysis

The early price action in Gold (XAU/USD) suggests that investor reaction to the 50-day moving average at 42032.70 will determine the direction into the close on Thursday.

A sustained move under the 50-day MA will indicate the presence of strong sellers. This could lead to a near-term break into the support at $2009.00, followed by the main bottom at $1984.30.

Overcoming the 50-day MA could trigger a spike to the upside with traders setting their near-term sights on resistance at $2067.00.