Gold (XAU/USD) remained relatively stable on Friday despite the US Core Personal Consumption Expenditures inflation data falling below expectations. The precious metal traded in the $2,510 range following the release of the data, which showed an annual increase in prices of 2.6%, slightly below the forecast but still in line with the previous month’s figure. The market sentiment turned positive after the data suggested that the US economy is not heading towards a hard landing, leading to a mild weakening of Gold at the start of the day.
Despite the lower-than-expected inflation data, Gold struggled to find support as anticipated. The US PCE data for July, which showed a 2.5% increase in headline PCE, did not lead to a rise in Gold prices. This unexpected reaction is due to the market expectation that lower inflation rates in the US would lead to a decline in interest rates, making Gold a more attractive investment option as it is a non-interest-bearing asset. However, the market sentiment on Friday seemed to overlook this potential benefit for Gold prices.
Gold remained under key resistance at $2,531, the August all-time high, after the release of positive US economic data suggesting that the economy is not in imminent danger of a recession. The revised upward GDP growth rate for Q2 and the better-than-expected Initial Jobless Claims data contributed to the optimism in the market and tempered concerns about a looming economic downturn. This outlook suggests that the Federal Reserve might adopt a more measured approach to interest rate cuts, which could benefit Gold in the long run.
Another supporting factor for Gold comes from China, where Gold imports rose by 17% in July. Chinese demand for Gold is expected to increase in the long term, especially in the face of economic slowdown and efforts to de-Dollarize by countries like the BRICS. However, short-term factors may weigh on Gold prices in China, including higher prices impacting jewelry demand and fiscal stimulus boosting the equity markets. Despite potential short-term challenges, the overall outlook for Gold demand from China remains positive.
Traders are closely monitoring the release of the Fed’s preferred inflation gauge, the Personal Consumption Expenditures (PCE) Price Index, which is expected to rise to 2.7% in July. Any deviation from this estimate could impact Gold prices, with higher inflation potentially weakening Gold prices. The derivatives market also poses a risk to Gold prices, with extreme long positioning indicating an overcrowded trade. TD Securities has entered a tactical short position in Gold, signaling concerns about downside risks in the market.
Technically, Gold continues to trade within a mini-range above its prior range, suggesting a sideways trend in the short term. However, the medium and long-term trends remain bullish, indicating a potential breakout higher in the future. A break above the $2,531 resistance level could confirm a continuation higher towards the $2,550 target. Conversely, a move below the $2,470 support level would negate the projected upside target and suggest a short-term downtrend for Gold. Overall, the technical analysis supports the view of a bullish trend for Gold in the long run.
