PCE in Focus as Central Banks Remain Hawkish

Gold reached a three-month low this week as the outlook for the Fed’s policy is still hawkish while inflation has declined significantly. This article looks at possibilities for the yellow metal around important upcoming data, notably personal consumption expenditures later today.

Comments by central bankers including Jerome Powell this week were mostly quite hawkish, with Dr Powell reiterating that two more hikes of the funds rate are likely this year. The large majority of participants – around 82% – expects a single hike by the Fed at its next meeting on 26 July, but the majority also still expects 5.25-5.5% to be the terminal rate this cycle with the first cut in March 2024 according to CME FedWatch Tool.

The rate of headline inflation has continued to drop more quickly than expected. That makes PCE, to be released on June 30 at 12.30 GMT, a particularly important release:

As the Fed’s preferred measure for inflation, PCE can give more information about what the next steps could be for rates. Annual non-core PCE could decline to 3.9% according to some expectations while the core figure for the same is expected to hold at 4.7%. Either way, the funds rate is higher than all of the main measures for inflation in the USA except for core CPI. Combined with likely further rate hikes and there being no clear sign of recession yet, the fundamental situation for gold is negative.

Gold-dollar, Daily

$1,900 is a crucial psychological support which aligns with the 200-day moving average, so from there it’d be likely to see either a bounce or a breakout lower depending on sentiment, changing expectations for the funds rate and today’s releases. For the time being, the upside still seems to be more favourable based on TA.

The slow stochastic is clearly oversold and buying volume has been overall greater than selling in recent weeks. Conversely, the 50 SMA from Bands is about to death cross the 100. Although sellers have been in control this week, it would probably be difficult to break through $1,900 without a strong catalyst.

The possible target of a breakout lower could be around $1,870, the area of the gap in the middle of March. To the upside, the 100 SMA around $1,965 might be an important resistance, but seasonality might mean that would take a while even if sentiment shifts to the positive. Summer’s typical lull in activity can make consolidation more likely than a sustained movement. Equally, strong buying pressure on lower timeframes hasn’t been able to move the price much above $1,912 for the last few days.

The opinions in this article are personal to the writer. They do not reflect those of Exness or FX Empire.