Gold (XAU) Price Forecast: Will PCE Inflation Data Spark a Bullish or Bearish Breakout?

Gold Prices Rise on Dollar Weakness and U.S. Data Focus

Gold prices edged higher on Wednesday, supported by a weaker U.S. dollar as traders await key U.S. economic reports. The market remains below its 50-day moving average, trading within a defined technical range while reflecting a broadly bearish trend.

Key Technical Levels

Gold is finding support at $2629.13 (50% retracement) and $2607.35 (Fibonacci level). Resistance lies at $2663.51 (50% retracement) and $2693.40 (Fibonacci level). The trend on the daily chart remains bearish, with a sustained move above $2663.51 potentially signaling a shift to bullish momentum. On the downside, a break below $2629.13 could open the door for further declines, potentially testing $2607.35 or lower.

Dollar Weakness and Fed Expectations

The U.S. dollar index dropped 0.4%, lending support to gold by making it more attractive to holders of other currencies. This followed a steep decline in gold prices earlier this week, driven by a reduction in safe-haven demand after geopolitical tensions eased.

Market participants are increasingly pricing in the possibility of a Federal Reserve rate cut in December, with the likelihood now at 66.5%, up from 55.7% earlier this week, according to CME Group’s FedWatch tool. Exinity Group Chief Market Analyst Han Tan commented, “The moderating U.S. dollar is helping gold extend its slight recovery following the steep declines at the onset of the week.”

Impact of PCE Data on Gold Prices

The core Personal Consumption Expenditures (PCE) index, a preferred inflation gauge for the Federal Reserve, is critical in shaping expectations for monetary policy. Hotter-than-expected PCE data would likely bolster the dollar and weaken gold, as it could diminish the likelihood of near-term rate cuts and signal that inflation remains elevated. Higher interest rates increase the opportunity cost of holding non-yielding assets like gold, making the metal less attractive.

Conversely, colder-than-expected PCE data could strengthen the case for rate cuts, driving the dollar lower and supporting gold prices. A weaker dollar generally enhances gold’s appeal for international buyers, while the prospect of lower interest rates makes bullion more competitive against yield-bearing assets. This factor could push gold above its resistance at $2663.51, opening the path toward $2693.40.

Physical Demand Boost

Gold’s recent price pullback has attracted physical buyers. Many had stayed out of the market during the metal’s earlier rally and are now stepping in to take advantage of the lower levels. This increased physical demand provides some underlying support for prices as traders await further economic signals.

Market Forecast

With gold currently trading around $2654, the market’s short-term direction will likely hinge on U.S. economic data. A move above $2663.51 could pave the way for further gains toward $2693.40, while a decline below $2629.13 may see prices retest $2607.35 or lower. Traders should prepare for volatility as core PCE inflation, GDP, and jobless claims data shape expectations for Federal Reserve policy.

More Information in our Economic Calendar.