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Gold price drifts lower ahead of US PCE Price Index, holds above $2,300 mark

  • Gold price struggles to capitalize on the overnight strong bounce from a two-week low.
  • Fed rate cut uncertainty helps limit the USD corrective slide and caps gains for the metal.
  • Traders also seem reluctant to place aggressive bets ahead of the key US PCE Price Index.

Gold price (XAU/USD) registered strong gains of over 1% on Thursday and snapped a two-day losing streak to a two-week low touched the previous day. Softer US macro data released on Thursday suggested that growth momentum in the world’s largest economy is moderating. This comes on top of signs of easing inflationary pressures and reaffirms market expectations that the Federal Reserve (Fed) will start cutting interest rates. This led to the overnight downfall in the US Treasury bond yields this year, which triggered the US Dollar (USD) corrective slide from its highest level since early May and benefited the precious metal. 

Apart from this, geopolitical tensions in the Middle East and the protracted Russia-Ukraine war provided an additional lift to the safe-haven Gold price. The upside for the XAU/USD, however, remains capped as bulls seem reluctant to place aggressive bets and prefer to wait for more cues about the Fed’s rate-cut path. Hence, the spotlight remains on the US Personal Consumption Expenditures (PCE) Price Index, due later during the North American session. The crucial US inflation data will influence expectations about the Fed’s future policy decision and determine the near-term trajectory for the non-yielding yellow metal. 

Daily Digest Market Movers: Gold price awaits US PCE for more cues about the Fed’s rate-cut path

  • The softer US macro data published on Thursday lifted bets for an imminent start of the Federal Reserve’s rate-cutting cycle this year and triggered a short-covering rally around the Gold price.
  • The real US GDP growth for the first quarter was revised up to 1.4% annualized pace, though it marked the slowest rise since spring 2022 and confirmed a sharp slowdown from 3.4% in the previous quarter.
  • The US Census Bureau reported that Durable Goods Orders increased by 0.1% in May as compared to a 0.1% fall anticipated and the 0.6% growth (revised from +0.7%) recorded in the previous month.
  • Separately, the Labor Department said that Initial Jobless Claims fell to 233,000 in the week ended June 22, but the four-week moving average rose to 236,000, or the highest level since last September. 
  • Furthermore, US Pending Home Sales – a forward-looking indicator of home sales based on contract signings– unexpectedly decreased by 2.1% in May, to the lowest level on record going back to 2001.
  • This comes on top of tepid US Retail Sales figures for May and signs that inflation is subsiding, which, in turn, should allow the Fed to lower borrowing costs as early as the September policy meeting.
  • The US Dollar, however, found some support from comments by Fed Governor Michelle Bowman, saying that we are not at a point yet to consider a rate cut as the upside risks to inflation persist.
  • This, in turn, caps any further gains for the XAU/USD ahead of the release of the US Personal Consumption Expenditures (PCE) Price Index – the Fed’s preferred inflation gauge – later this Friday.

Technical Analysis: Gold price fails ahead of 50-day SMA support breakpoint turned hurdle

From a technical perspective, the overnight positive move stalled ahead of the 50-day Simple Moving Average (SMA) support breakpoint, now turned resistance. The said barrier is currently pegged near the $2,337-2,338 region, which should now act as a key pivotal point. A sustained strength beyond has the potential to lift the Gold price back towards the $2,360-2,365 supply zone. Some follow-through buying will negate any near-term negative bias and allow bulls to reclaim the $2,400 round-figure mark. The momentum could extend further towards challenging the all-time peak, around the $2,450 area touched in May.

On the flip side, the $2,300 round-figure mark is likely to protect the immediate downside ahead of the $2,285 horizontal support. A convincing break below the latter will be seen as a fresh trigger for bearish traders and drag the Gold price to the 100-day SMA, currently near the $2,250 area. The XAU/USD could eventually drop to the $2,225-2,220 region en route to the $2,200 round-figure mark.

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.