Gold price (XAU/USD) experienced a sharp decline to near $2,340 in Wednesday’s New York session as investors worried about the Federal Reserve keeping interest rates high for longer. This drop came after a failed recovery attempt that pushed the price near $2,360. The Fed’s emphasis on maintaining higher interest rates has caused concern among investors, leading to a shift in focus to the US core PCE price index data for guidance.
Investors are now turning their attention to the US core Personal Consumption Expenditure Price Index (PCE) data for April, set to be released on Friday. This data is expected to show steady growth both on a monthly and annual basis, with a forecasted increase of 0.3% and 2.8% respectively. The expected growth in inflation data could lead to interest rates remaining high, which would increase the opportunity cost of holding non-yielding assets like Gold. This scenario would benefit interest-bearing assets and the US Dollar.
At the time of writing, the US Dollar has risen to 104.70, and the 10-year US Treasury yields are at a fresh three-week high around 4.57% due to cautious market sentiment. The outlook for Gold prices remains uncertain as traders become less confident in the Fed reducing borrowing rates starting in September, with the CME FedWatch tool showing a lower probability of rate cuts compared to a week ago.
Fed officials are taking a patient approach to interest rates as they await evidence of sustainable inflation reaching the desired 2% rate. Despite a temporary decline in inflationary pressures in April, policymakers are still opting to keep interest rates elevated due to concerns about the longevity of the slowdown in prices. Fed policymakers are willing to tighten policy further if the disinflation process stalls or if price pressures increase again.
Technical analysis shows that Gold prices have weakened after the breakdown of an Inverted Flag chart formation on an hourly timeframe. This breakdown suggests that a downward trend has resumed with the entry of new sellers. The near-term outlook for Gold price is uncertain as it has dropped below the 50-period Exponential Moving Average (EMA) at around $2,350.
The Core Personal Consumption Expenditures (PCE) Price Index, which is the Federal Reserve’s preferred measure of inflation, is set to be released by the US Bureau of Economic Analysis. The YoY reading compares the prices of goods in the reference month to the same month in the previous year. A higher reading is considered bullish for the US Dollar, while a lower reading is bearish. Investors will closely monitor this data for further insights into the economic outlook.
