The price of gold remained stable, trading near the $3,750 mark during European market hours on Friday. Investors are closely watching for the release of the United States Personal Consumption Expenditure (PCE) Price Index for August, a critical inflation metric that could influence future Federal Reserve interest rate decisions.
Key Takeaways
- Gold is currently trading in a narrow range around $3,750 as markets await important economic data.
- The upcoming U.S. PCE inflation report for August is the primary focus for traders, as it is the Federal Reserve's preferred inflation measure.
- Recent data showing stronger-than-expected U.S. economic growth has slightly reduced market expectations for aggressive Fed rate cuts.
- Despite the pause, technical analysis suggests the near-term trend for gold remains bullish, with key support and resistance levels being monitored.
Investors Focused on PCE Inflation Report
The financial markets are in a holding pattern ahead of the U.S. PCE inflation data, scheduled for release at 12:30 GMT. This report is closely scrutinized by the Federal Reserve and is considered a more comprehensive measure of inflation than the more widely known Consumer Price Index (CPI).
Economists forecast that the core PCE, which excludes volatile food and energy prices, grew by 0.2% on a monthly basis in August. This would be a slight moderation from the 0.3% reading in the previous month. On an annual basis, the figure is expected to hold steady at 2.9%, indicating persistent but not accelerating inflation.
The outcome of this report will provide crucial clues about the potential path of monetary policy. A lower-than-expected inflation reading could encourage the Fed to proceed with interest rate cuts, while a higher figure might cause officials to delay easing.
Why the PCE Report Matters
The Personal Consumption Expenditure (PCE) Price Index is the Federal Reserve's primary gauge for inflation. Unlike the CPI, which tracks out-of-pocket expenses for urban consumers, the PCE index measures the prices of goods and services purchased by all U.S. households. Its broader scope and dynamic weighting make it a more accurate reflection of consumer behavior, which is why Fed officials place more emphasis on it when making policy decisions.
Economic Growth Data Shifts Fed Expectations
Investor sentiment was recently influenced by revised data on U.S. economic performance. On Thursday, the government reported that the nation's Gross Domestic Product (GDP) expanded at an annualized rate of 3.8% in the second quarter. This was a significant upward revision from the initial estimate of 3.3%.
The stronger economic growth suggests the U.S. economy is more resilient than previously thought, which could give the Federal Reserve less urgency to cut interest rates. Aggressive rate cuts are typically implemented to stimulate a slowing economy.
Market Odds on Rate Cuts Adjust
According to the CME FedWatch tool, the probability of the Federal Reserve cutting interest rates by 50 basis points (0.50%) by the end of the year has decreased. Following the GDP report, these odds fell to 62% from 73.3% just a day earlier.
This shift in expectations has implications for gold. As a non-yielding asset, gold becomes less attractive to investors when interest rates are high, as bonds and other interest-bearing instruments offer better returns. Conversely, when rates are cut, gold's appeal as a store of value increases.
Gold's Role as a Safe-Haven Asset
Beyond interest rate speculation, gold holds a unique position in the global financial system. For centuries, it has been used as a store of value and a medium of exchange. In modern times, it is primarily viewed as a safe-haven asset, meaning its value tends to hold or increase during times of economic uncertainty or market turmoil.
Investors often turn to gold to hedge against inflation. Because it is a physical commodity with a finite supply, it cannot be devalued by government money-printing in the same way as fiat currencies. This makes it a popular tool for preserving wealth when the purchasing power of currencies like the U.S. dollar is declining.
"Gold's value doesn't rely on any specific issuer or government, making it a reliable hedge against depreciating currencies and geopolitical instability."
Central banks are among the largest holders of gold globally. They purchase the precious metal to diversify their foreign exchange reserves and bolster confidence in their nation's currency and economic stability.
Central Bank Gold Purchases
In 2022, central banks added a record 1,136 tonnes of gold, valued at approximately $70 billion, to their reserves, according to the World Gold Council. This was the highest level of annual net purchases since records began, with central banks in emerging economies like China, India, and Turkey leading the buying.
Technical Outlook for Gold (XAU/USD)
From a technical standpoint, the price of gold continues to show signs of underlying strength despite the recent consolidation. The precious metal is trading within the range established during Thursday's session, indicating a balance between buyers and sellers ahead of the inflation report.
The near-term trend is considered bullish. This is supported by the 20-day Exponential Moving Average (EMA), a key short-term trend indicator, which is currently sloping upward around the $3,644.80 level. As long as the price remains above this moving average, the bullish momentum is likely to continue.
Another important technical feature is an upward-sloping trendline that originates from the low of $3,321.50 recorded on August 22. This trendline is expected to act as a significant support level, meaning buyers are likely to step in if the price declines toward it.
Key Levels to Watch
The 14-day Relative Strength Index (RSI), a momentum oscillator, is currently fluctuating within the 60.00-80.00 range. A reading above 50 generally indicates bullish momentum, and values in this higher range suggest that the positive momentum is strong.
- Immediate Resistance: The first major hurdle for gold is the high of $3,791 reached on September 23. A decisive break above this level could open the door for further gains.
- Upside Target: If the price successfully surpasses the $3,791 resistance, the next psychological and technical target would be the $3,900 level.
- Key Support: The upward trendline from the August low, along with the 20-day EMA near $3,644.80, will serve as the primary support zones to watch on any pullback.
The market's next significant move will likely be triggered by the PCE data. A cooler-than-expected inflation number could reignite hopes for Fed rate cuts and push gold prices higher, while a surprisingly hot report could strengthen the U.S. dollar and put pressure on the precious metal.
