Gold Prices Forecast: US PCE Inflation Data to Set Near-Term Tone

Gold Prices Poised for Fourth Monthly Gain

Gold prices are set to mark their fourth consecutive monthly gain despite struggling for momentum ahead of a crucial U.S. inflation reading. This gain is driven by central bank buying and ongoing geopolitical risks, underscoring gold’s appeal as a safe-haven asset.

At 08:48 GMT, XAU/USD is trading $2342.81, down $0.54 or -0.02%.

Market Anticipation of PCE Data

The market’s focus is now on the U.S. core Personal Consumption Expenditures (PCE) price index data, the Federal Reserve’s preferred inflation measure. Scheduled for release at 12:30 GMT, the data is expected to show a slight decline in core inflation to 2.7% annually and 0.2% monthly. Such a result would indicate incremental progress towards the Fed’s 2% inflation target, providing critical insights into future rate cuts.

Economic Indicators and Fed Policy

Economists expect modest improvements in inflation data, reflecting an economy that has stabilized. The recent Commerce Department report indicated that first-quarter PCE inflation rose by 3.3% overall and 3.6% on core, slightly below initial estimates. Despite these figures being higher than the Fed’s target, they suggest a gradual reduction in price pressures.

Fed officials, including New York Fed President John Williams, have expressed optimism about inflation trends, predicting core PCE inflation to fall to about 2.5% by the end of 2024. However, recent hawkish statements from Fed members indicate a cautious approach to rate cuts, with current expectations for a single cut possibly in November.

Impact on Gold Prices

Gold prices have remained steady, supported by weaker-than-expected U.S. GDP data and lowered expectations for immediate rate cuts. A stronger-than-expected PCE reading could pressure gold prices in the short term, but the broader upward trend is likely to persist, with strong support around the $2,300 level.

U.S. Treasury yields have eased as investors await the PCE data, reflecting heightened sensitivity to inflation trends and Fed policy signals. The Fed’s gradual progress towards its inflation target, coupled with persistent geopolitical risks, continues to support gold’s allure as a safe-haven investment.

Market Forecast

Given the mixed economic signals and the Fed’s cautious stance, gold prices are expected to remain bullish in the near term. While an unexpected rise in PCE data could create short-term volatility, the overall market sentiment remains supportive of gold, driven by ongoing central bank purchases and persistent geopolitical uncertainties.

Traders should watch for the PCE data release and Fed commentary for further clues on interest rate policy and its impact on gold. Essentially, a strong PCE number is initially expected to weigh on gold prices with limited downside potential. While a weaker PCE number is likely to underpin prices and could lead to another record high over the near-term.

Technical Analysis

XAU/USD is flat on Friday while trading slightly above the 50-day moving average at $2327.47. This indicator is controlling the intermediate up trend.

A sustained move over $2327.47 will signal the presence of buyers. If this creates enough upside momentum then look for a surge into the pivot at $2387.80.

On the downside, a failure at $2327.47 will signal a significant shift in trader sentiment. This could trigger a quick drop into the short-term bottom at $2325.46. This is a potential triggerpoint for an acceleration into the next target at $2277.34.