Gold Prices Forecast: XAU/USD Recovering as Traders Eye PCE Inflation Data

James Hyerczyk
Published: May 27, 2024, 09:30 GMT+00:00

Key Points:

  • Gold prices are recovering from a two-week low as traders are anticipating key inflation data.
  • The release of the core PCE index this week is significantly affecting gold's appeal as an inflation hedge.
  • Persistent high interest rates and strong U.S. data are keeping pressure on gold prices, affecting market sentiment.
Gold Prices Forecast

In this article:

Gold prices saw a modest recovery on Monday, rebounding from a two-week low reached in the previous session. Traders are cautiously evaluating the diminishing likelihood of U.S. interest rate cuts ahead of a critical inflation report due later this week.

Spot gold has inched up after hitting its lowest point since May 9 at $2,325.19 on Friday. This comes after bullion surged to a record high of $2,449.89 earlier last week but then fell back by over $100.

At 09:18 GMT, XAU/USD is trading $2344.66, up $10.66 or +0.46%.

Inflation Report in Focus

The upcoming release of the core personal consumption expenditures price index (PCE) on Friday has the market’s attention. This index is the U.S. Federal Reserve’s preferred inflation measure and its results could significantly influence gold prices. Historically, gold serves as a hedge against inflation, but the appeal of non-yielding gold diminishes when interest rates are higher, as it raises the opportunity cost of holding the metal.

Technical Analysis and Market Sentiment

Technical indicators suggest gold might drop further into the $2,313.07 to $2,277.34 range, potentially triggering a technical bounce. However, if U.S. economic data continues to outperform expectations, the decline in gold prices may extend. Recently, bullish sentiment has waned, with some investors liquidating positions or turning bearish. This shift is influenced by the Federal Reserve’s persistent stance on maintaining higher interest rates for an extended period.

Fed’s Outlook and Market Reactions

Minutes from the Federal Reserve’s latest meeting indicated that achieving the central bank’s 2% inflation target could take longer than anticipated. This has tempered market expectations for rate cuts, with traders now predicting only a 62% chance of a rate reduction by November 2024, according to the CME FedWatch Tool.

Market Forecast: Bearish Outlook

Given the current market conditions and the Federal Reserve’s stance, the outlook for gold remains bearish in the short term. The potential for further interest rate hikes and strong U.S. economic data could continue to pressure gold prices downward. Traders should remain cautious, as the upcoming inflation data could trigger further volatility in the market.

Daily Gold (XAU/USD)

Despite today’s technical bounce, XAU/USD is nearing the critical 50-day moving average at $2,313.35, which is key for the intermediate trend.

Expect another bounce on the first test of this moving average, as traders typically buy on dips. If this level fails, selling pressure could drive prices down to the short-term support at $2,277.34.

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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