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Gold Prices Capped as Fed Signals Possible Rate Hikes Amid Inflation Fears

By:
James Hyerczyk
Updated: Mar 31, 2023, 08:39 GMT+00:00

Gold is set up for volatile reaction to Core PCE Price Index report.

Comex Gold

In this article:

Highlights

  • Gold prices slightly lower due to rising US dollar ahead of inflation data
  • Fed officials suggest more rate hikes possible to combat high inflation
  • PCE data release to provide insight into Fed’s future course of action

Overview

Gold prices slipped slightly on Friday, as the US dollar rose ahead of the release of key US inflation data that could impact the Federal Reserve’s monetary policy. Gold is expected to end the month and quarter higher due to expectations that the Fed might pause interest rate hikes.

At 08:00 GMT, June Comex Gold is trading $1992.90, down $4.80 or -0.24%. The XAU/USD is at $1975.37, down $3.19 or -0.16%. On Thursday, the SPDR Gold Shares ETF settled at $184.18, up $1.65 or +0.90%.

Federal Reserve Officials Signal Potential for More Rate Rises

Three Federal Reserve officials have suggested that more rate rises could be on the cards in order to combat high levels of inflation. However, two of the officials noted that banking sector problems could slow the economy and help reduce inflation more quickly than expected.

The comments were made by Boston Fed leader Susan Collins, Minneapolis Fed leader Neel Kashkari and Richmond Fed leader Thomas Barkin, who also hinted at the need for “nimble” monetary policy in current circumstances. Collins suggested that a rise in unemployment may be necessary to lower wage price inflation, but also hinted at a looming economic slowdown.

According to the CME FedWatch tool, there is a 52.2% probability that the Federal Reserve will maintain interest rates in May.

Investors are eagerly anticipating the Personal Consumption Expenditures (PCE) data, due to be released at 12:30 GMT, which is the preferred inflation metric of the Fed. This data will provide more insight into the US central bank’s future course of action.

Consumer spending increased significantly in January, and the February reading of the PCE price index will provide additional clues on the situation. Analysts anticipate that the core prices rose by 0.4% in February, resulting in a 4.7% annual increase.

Daily June Comex Gold

Daily June Comex Gold Technical Analysis

The main trend is up according to the daily swing chart. A trade through $2031.70 will signal a resumption of the uptrend. A move through $1953.70 will change the main trend to down.

The minor range is $2031.70 to $1953.70. The market is currently straddling its retracement zone at $1992.70 – $2001.90.

On the upside, resistance is the April 18, 2022 main top at $2045.80. Support is a 50% level at $1968.90.

Daily June Comex Gold Technical Forecast

Trader reaction to $1992.70 and $2001.90 is likely to determine the direction of June Comex Gold on Friday.

Bearish Scenario

A sustained move under $1992.70 will indicate the presence of sellers. This could trigger a sharp break into $1968.90, followed by the main bottom at $1953.70.

A trade through $1953.70 will change the main trend to down. This could extend the selling into $1931.70 – $1907.20.

Bullish Scenario

A sustained move over $2001.90 will signal the presence of buyers. This could trigger an acceleration into the minor top at $2023.90, followed by the main top at $2031.70.

Side Notes

Stronger than expected PCE data could trigger a sharp break under $1992.70. Weak PCE data will likely fuel an upside breakout over $2001.90.

For a look at all of today’s economic events, check out our economic calendar.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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