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- Gold price returns to the red early Friday, awaiting US PCE inflation data.
- The US Dollar follows the USD/JPY and Treasury bond yields higher even as the mood improves.
- The fate of Gold price hinges on the top-tier US data but downside risks remain intact.
Gold price has snapped its rebound from two-week lows early Friday, losing ground after running into offers near the $2,330 resistance again. The next direction for Gold price now remains in the hands of the US Personal Consumption Expenditure (PCE) inflation data.
All eyes remain on US PCE inflation data and Japan’s intervention risks
Gold price is back in negative territory in Asian trading on Friday, as the US Dollar extends Thursday’s late rebound and recovers lost ground on the back of the resumption of the USD/JPY uptrend and rising US Treasury bond yields.
Higher US Dollar and US Treasury bond yields trigger a fresh bout of selling in the non-yielding Gold price. Additionally, traders turn cautious and refrain from placing fresh bets on Gold price heading into the US inflation showdown.
The US annual PCE Price Index is seen rising 2.6% in May, compared to a 2.7% increase in April while the Federal Reserve (Fed) preferred inflation measure, the core PCE figure, is expected to accelerate by 2.6% YoY, slowing from a 2.8% growth in April.
If the inflation data points to slowing price pressures, Gold price is likely to regain its recovery momentum, as the US Dollar would come under strong selling pressure on increased bets for a September rate cut. On the contrary, the US Dollar could stretch its recent advance and weigh on Gold price should the data surprise to the upside.
Markets are now pricing in about a 64% chance of a Fed rate cut in September, a tad higher than the 62% seen Thursday, according to CME FedWatch Tool.
Meanwhile, the first US presidential election debate in the showdown to the November 5 polls had little to no impact on the value of the US Dollar and that of Gold price.
On Thursday, mixed US growth, Durable Goods Orders and housing data exerted downward pressure on the US Dollar. The Greenback already bore the brunt of the correction in the USD/JPY. This helped Gold price stage a decent comeback from two-week troughs under $2,300.
Further, Fed Governor Michele Bowman’s change of words exacerbated the buck’s pain. Bowman said, “I am still willing to raise rates again if inflation doesn’t ease.” Atlanta Fed President Raphael Bostic also delivered dovish remarks, suggesting that an interest rate cut in the fourth quarter was likely, with inflation moving in the right direction.
Gold price technical analysis: Daily chart
Gold price downside remains intact, despite the previous rebound, as the 14-day Relative Strength Index (RSI) remains below the 50 level.
Therefore, any rebound in Gold price continues to remain a good selling opportunity.
Adding credence to the bearish potential, the previous week’s 21-day Simple Moving Average (SMA) and the 50-day SMA bearish crossover continues to act as a headwind.
If sellers extend control, the $2,300 threshold will be put to test once again, below which the June low at $2,287 could come to the buyers’ rescue.
Further down, the May 3 low at $2,277 will come into play.
Alternatively, Gold price needs to take out the 21-day SMA at $2,328 on a daily closing basis to resume the recovery from the monthly low of $2,287.
Further up, the 50-day SMA at $2,338 will be eyed, followed by the two-week high of $2,366.
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.