Gold Prices Forecast: Traders Eye Core PCE’s Potential Impact on Fed Policy

Gold Prices Steady Ahead of Key U.S. Inflation Data

Gold prices remained stable on Friday, poised for a third consecutive quarterly increase as traders await the U.S. personal consumption expenditures (PCE) data for insights into the Federal Reserve’s next moves on interest rates.

At 11:26 GMT, XAU/USD is trading $2334.43, up $6.62 or +0.28%.

Gold Holding Firm Amid Market Uncertainty

Gold has shown resilience in the current consolidating phase, with hedge funds maintaining their positions since the February-March rally. In May, gold surged to an all-time high, driven by expectations of rate cuts, China’s stimulus measures, and geopolitical tensions. The metal is expected to remain strong as long as it holds above $2,275, with potential to reach $2,600 by year-end, bolstered by multiple supportive factors.

PCE Data and Market Expectations

The U.S. PCE numbers, the Fed’s preferred inflation gauge, are due at 12:30 GMT. A soft PCE reading is crucial to sustain hopes for a Fed rate cut, which would further support gold prices. The market anticipates little to no monthly increase in the headline PCE for May, with the core PCE expected to show its lowest annual rise since March 2021. The Dow Jones forecasts for Friday’s PCE numbers are for a flat headline reading and a 0.1% rise in core PCE, compared to April’s increases of 0.3% and 0.2%, respectively.

Fed Policy and Economic Indicators

Gold rose over 1% in the previous session following a slowdown in U.S. economic activity. However, Fed Governor Michelle Bowman remains cautious, not yet ready to support a rate cut due to persistent inflation pressures. Despite progress in reducing inflation from its mid-2022 peak, core PCE has risen 14% since March 2021. Fed officials, including Governor Lisa Cook, emphasize the ongoing challenge of returning inflation to the 2% target. Futures markets are pricing in a likely quarter-percentage-point rate cut in September, with another possible by year-end, contingent on forthcoming data.

Market Forecast: Bullish Outlook for Gold

Short-term Forecast: In the near term, it is crucial for gold to hold above the $2,275 level to avoid a forced long-liquidation phase. Stability above this threshold will support a positive sentiment and maintain the metal’s strength.

Long-term Forecast: As long as supportive factors persist and the Fed moves towards easing, gold is expected to maintain its upward momentum. By the end of the year, gold could potentially reach $2,600, driven by sustained demand and favorable economic conditions. Traders should closely monitor economic indicators and Fed policy signals to adjust their positions effectively.

Technical Analysis

Gold prices remain above key support at $2,275, holding firm despite recent fluctuations. The 50-day moving average at $2,337 serves as both resistance and a potential trigger point for an upside breakout. Maintaining stability above $2,275 is crucial to prevent a long-liquidation phase, with potential upside targets at $2,387.79, $2,450 and beyond.