Gold Prices Forecast: XAU/USD Set for Weekly Loss Ahead of PCE Report

Overview

Gold prices are sharply higher on Friday as investors awaited a crucial U.S. inflation report, yet the commodity is poised to record its first weekly decline in six weeks. This downturn reflects a reduction in geopolitical tensions in the Middle East and shifting expectations surrounding U.S. monetary policy.

At 10:11 GMT, XAU/USD is trading $2348.435, up $15.945 or +0.68%.

Weekly Performance and Market Sentiment

Gold is set to conclude the week with a 2.3% decrease, marking its most significant weekly fall since early December. This decline comes after prices receded nearly $100 from the all-time high of $2,431.29 reached on April 12. The easing of the Middle East crisis has notably influenced market sentiment, dampening the immediate rush to safe-haven assets such as gold.

Economic Data Impact

Recent U.S. economic data has introduced mixed signals, contributing to market volatility. According to IG market strategist Yeap Jun Rong, while there has been a notable slowdown in economic growth, persistent inflation pressures remain. The U.S. GDP expanded by a mere 1.6% in the first quarter, significantly below expectations, intensifying concerns over sustained inflation despite a cooler economic environment.

Treasury Yields and Monetary Outlook

The reaction in U.S. Treasury yields was evident, with both the 10-year and 2-year yields experiencing fluctuations. These movements reflect the market digesting the dual narrative of slower growth but stubborn inflation, impacting the attractiveness of non-yielding bullion. The upcoming personal consumption expenditures (PCE) price index, a preferred inflation measure by the Federal Reserve, is highly anticipated and could sway the Fed’s stance on interest rates in their next policy meeting.

Market Forecast

Looking ahead, the direction of gold prices will hinge significantly on the outcome of the PCE report and subsequent Federal Reserve actions. If PCE figures indicate higher inflation, expectations for an extended period of high-interest rates could dampen the appeal of gold. Conversely, any signs of easing inflation might revive gold’s allure as a hedge against currency devaluation. Currently, the market leans towards a bearish outlook for gold, considering potential monetary tightening if inflation remains unchecked.

Technical Analysis

The short-term trend is down, but the market remains well-supported by the intermediate up trend. It is being controlled by the 50-day moving average at $2205.971.

The short-term range is $2431.59 to $2291.465. Its 50% level at $2361.53 is controlling the near-term direction of XAU/USD.

A trade through $2291.465 will signal the presence of sellers. This could trigger an acceleration into $2205.971. Overtaking $2361.53 will signal the return of buyers.