Gold experienced a rebound towards the end of the week following the release of US PCE inflation data which fell below expectations. The data indicates a potential continuation of the Federal Reserve’s monetary easing stance, a positive factor for Gold. However, the Gold price faced a retreat due to less dovish interest rate prospects and a stronger US Dollar, which were bearish for the precious metal.
The Gold market saw a recovery, reaching around $2,660 per troy ounce on Friday following the disappointing US PCE inflation data release. The trend of disinflation suggests that the Fed will continue to lower interest rates steadily, which is beneficial for Gold since it is a non-interest paying asset.
US Core PCE data for August showed a 0.1% increase month-on-month, falling short of the expected 0.2% and the previous 0.2% reading in July. On an annualized basis, Core PCE rose by 2.7%, exceeding the 2.6% in July. Headline PCE also rose by 0.1% month-on-month but failed to meet the 0.2% previous reading, while year-on-year it rose by 2.2%, lower than the previous 2.5%.
Following the new record high in Gold prices, the market experienced a stall as the impact of Chinese government stimulus waned, and global central banks adopted a less dovish stance. The Central Bank of Sri Lanka maintained rates at their meeting, while the SNB and Banxico cut rates by only 25 bps. Market expectations for a 50 bps rate cut by the Fed in November decreased due to positive US macroeconomic data.
Gold also faced reduced safe-haven flows as tensions between Israel and Hezbollah did not escalate to a ground offensive, and conflicts in Yeman disrupted shipping in the Red Sea, causing concerns. The possibility of a ground offensive in Lebanon by the Israeli Defence Forces could lead to increased risk aversion and boost safe-haven flows into Gold.
Technically, Gold pulled back from its all-time high of $2,685 and is currently in an uptrend on short, medium, and long-term bases. The RSI indicator suggests that Gold is overbought, increasing the chances of a deeper pullback. If Gold exits the overbought region, it may lead to a further correction. However, if Gold continues to break to higher highs, it will confirm the uptrend, with potential targets at $2,700 and $2,750.
Gold has a significant historical and modern role as a store of value and medium of exchange, especially during turbulent times. Central banks are major holders of Gold, using it to support their currencies and improve economic and currency strength. The precious metal has an inverse correlation with the US Dollar and US Treasuries, making it a popular asset for diversification during market uncertainties. Various factors such as geopolitical instability, inflation concerns, and interest rates can influence Gold prices, which are largely dependent on the performance of the US Dollar.
