Gold (XAU) Price Forecast: Core PCE Data to Determine Next Big Move in Gold Rally

Gold Consolidates Below Record High as Traders Await Key Inflation Data

Gold prices are edging lower on Tuesday, consolidating just below the record high of $2,531.77 per ounce. The metal’s rally has slowed as traders adopt a cautious stance ahead of the upcoming Core PCE inflation report, which could influence the Federal Reserve’s decision on interest rate cuts in September.

At 10:00 GMT, Gold (XAU/USD) is trading $2508.66, down $9.30 or -0.37%.

Gold Holds Above $2,500 on Fed Rate Cut Hopes and Middle East Tensions

Despite the slight decline, gold remains above the significant $2,500 per ounce level, buoyed by investor optimism about imminent U.S. interest rate cuts and ongoing concerns about the conflict in the Middle East. Spot gold is nearly unchanged, but the precious metal has gained over 21% this year, driven by strong demand amid economic and geopolitical uncertainties.

The likelihood of a rate cut at the Federal Reserve’s September meeting has been a major driver of gold’s recent gains. According to the CME FedWatch tool, traders see a 70% chance of a 25-basis-point (bp) rate cut and a 30% probability of a more substantial 50-bp reduction. A lower interest rate environment typically enhances the appeal of non-yielding assets like gold.

Fed’s Daly Confirms Likelihood of September Rate Cut

San Francisco Federal Reserve President Mary Daly reaffirmed expectations of a rate cut next month, indicating that a quarter-percentage-point reduction is likely. Daly emphasized that the time has come for the Fed to begin easing its policy, given the progress in reducing inflation and the cooling labor market. The Fed has maintained its policy rate in the 5.25%-5.50% range since July 2023, but recent comments from Fed officials suggest a shift towards rate cuts is imminent.

Fed Chair Jerome Powell echoed similar sentiments last week at the Jackson Hole conference, indicating that the central bank is prepared to reduce rates as inflation continues to decline. The Core PCE inflation report, due on Friday, is expected to be a key factor in shaping the Fed’s decision at its September 17-18 policy meeting.

Market Forecast: Gold Likely to Maintain Upward Momentum

Looking ahead, the outlook for gold prices remains bullish. Market strategists, including IG’s Yeap Jun Rong, anticipate that gold will continue its upward trend, supported by the Fed’s rate-easing cycle, strong central bank demand, and its role as a hedge against geopolitical and economic risks. ANZ commodity strategist Soni Kumari predicts that gold could reach $2,550 in the mid to long term, though a short-term correction may occur as the market digests recent gains.

In summary, while gold prices are currently consolidating, the broader trend remains positive, with further gains likely as the market anticipates a dovish shift from the Federal Reserve.

Technical Analysis

The main trend is up. A trade through $2531.77 will signal a resumption of the uptrend. A move through $2470.85 will change the main trend to down.

Buyers could come in on a pullback into a pivot at $2482.00, If this fails, prices could face a steep decline with another pivot at $2442.48 the next target.