Gold Prices Forecast: Will Core PCE Shape Fed Policy and Market Sentiment?

James Hyerczyk
Updated: Jun 23, 2024, 05:51 GMT+00:00

Key Points:

  • Gold prices experienced a slight decline last week, losing less than 0.50% due to mixed economic data and Fed speculation.
  • The U.S. dollar reached its highest in seven weeks, making gold more expensive for other currency holders. Treasury yields also rose.
  • Fed officials' mixed comments on potential rate cuts added uncertainty, leading to fluctuations in gold prices as traders monitor economic data.
  • Upcoming U.S. economic reports will be closely watched for signals on growth, inflation, and potential shifts in monetary policy, affecting gold market sentiment.
  • This week's major U.S. economic reports, including GDP (2nd revision), Initial Jobless Claims, and Core PCE, could significantly impact gold prices.
Gold Prices Forecast

In this article:

Key Events Driving Gold Prices Last Week

Gold prices experienced a mild decline last week, losing less than 0.50%. This small movement was primarily due to mixed economic data and ongoing speculation about the Federal Reserve’s future monetary policy. Despite the minor loss, gold prices remain influenced by several key factors that traders should be aware of.

Last week, XAU/USD settled at $2321.875, down 10.770 or -0.46%.

Weekly Gold (XAU/USD)

Stronger Dollar and Rising Yields

The U.S. dollar appreciated by 0.3% last week, reaching its highest level in over seven weeks, which made gold more expensive for holders of other currencies. Concurrently, the yield on 10-year U.S. Treasury notes increased, reflecting the market’s anticipation of further economic strength. These factors collectively added pressure on gold prices by increasing the opportunity cost of holding non-yielding bullion​​​​.

Weekly US Dollar Index (DXY)

U.S. Business Activity and Employment Data

U.S. business activity hit a 26-month high in June, bolstered by a rebound in employment. Initial unemployment benefit claims fell slightly last week, indicating a robust labor market. These positive economic indicators reinforced expectations that the Federal Reserve might delay interest rate cuts, which in turn influenced gold prices​​​​.

Federal Reserve Rate Cut Speculation

Mixed comments from Federal Reserve officials have kept market participants on edge. While some officials suggest that a single rate cut might be appropriate by the end of the year, others stress the need for more data before making any policy changes. This uncertainty has contributed to fluctuations in gold prices, with traders closely monitoring economic data and Fed communications for clues on future rate moves​​​​.

Global Economic and Geopolitical Factors

Geopolitical tensions in the Middle East and political uncertainties in Europe, particularly with upcoming elections in France and the UK, have provided support for gold as a safe-haven asset. Additionally, economic challenges in China, such as a slowdown in industrial output and high local government debt, have contributed to a risk-off sentiment among investors, further underpinning gold prices​​​​.

Key Upcoming Events

This week’s major U.S. economic reports include GDP (2nd revision), Initial Jobless Claims, and Core PCE. These reports, along with various Fed speaker appearances, could significantly impact gold prices. Traders should pay attention to signals about economic growth, inflation, and potential shifts in monetary policy.

Market Forecast

Short-Term Bearish Outlook

In the short term, the outlook for gold appears bearish due to uncertainty over the timing of the Federal Reserve’s rate cut and a potential pause in China’s gold-buying spree. The stronger U.S. dollar and rising Treasury yields add additional downward pressure on gold prices. Traders should remain cautious and closely monitor upcoming economic data, as any signs of robust economic performance could delay rate cuts and further depress gold prices​​​​.

Long-Term Bullish Outlook

Despite the short-term bearish sentiment, the long-term outlook for gold remains bullish. The expectation that the economy will eventually slow, forcing the Federal Reserve to lower its benchmark rate, underpins this perspective. Softer U.S. economic data and the potential for dovish monetary policy in the future are key supportive factors. As the opportunity cost of holding gold decreases with lower interest rates, gold prices are likely to rise​​​​.

In conclusion, while gold experienced a slight decline last week and faces short-term headwinds, the broader economic environment and potential for dovish Fed policy support a bullish outlook in the long run. Traders should stay vigilant to incoming data and Fed communications, which will be pivotal in determining gold’s movement in the coming weeks.

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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