Gold Prices Rebound After US Inflation Data Falls Short of Expectations
Gold prices (XAU/USD) experienced a notable recovery on Friday, trading in the $2,660s per troy ounce, following the release of US Personal Consumption Expenditures (PCE) inflation data that came in lower than anticipated. This disinflationary trend is seen as a positive indicator for gold, suggesting that the Federal Reserve (Fed) may continue its monetary easing policies.
The US Core PCE inflation rate rose by 0.1% month-over-month in August, which was below the expected 0.2% and the previous month’s 0.2% increase, according to the US Bureau of Economic Analysis. On an annual basis, Core PCE increased by 2.7%, slightly above July's 2.6% and in line with forecasts.
Headline PCE also rose by 0.1% month-over-month, matching expectations but lower than the previous month’s 0.2% increase. Year-over-year, headline PCE rose by 2.2%, down from 2.5% previously and lower than the expected 2.3%.
Prior to the data release, gold prices had been declining due to diminishing effects from Chinese government stimulus measures and a global trend of central banks adopting a less dovish monetary policy. After reaching a record high at the end of the previous trading week, gold prices appeared to stabilize as the market absorbed the impact of the additional 1 trillion CNY stimulus announced by the Chinese Politburo.
Central banks around the world have shown a trend towards maintaining or only modestly adjusting interest rates. For instance, the Central Bank of Sri Lanka kept its rates unchanged, while the Swiss National Bank (SNB) and the Bank of Mexico (Banxico) each cut rates by just 25 basis points. A recent Reuters poll indicated that the Reserve Bank of India (RBI) is expected to implement a modest 50 basis point cut over the next six months.
Expectations surrounding the Fed's potential interest rate cuts have also shifted. The likelihood of a 50 basis point cut at the upcoming November meeting has decreased to 50% from over 60% prior to the latest data release. This change follows positive macroeconomic indicators, including a drop in US Initial Jobless Claims to 218,000 for the week ending September 20, and a Q2 GDP growth estimate remaining steady at a healthy 3.0% annualized rate. Additionally, US Durable Goods Orders exceeded expectations, painting a picture of a soft landing for the economy contrary to market predictions of aggressive monetary easing.
Gold's safe-haven appeal may also be waning as fears of escalating conflict between Israel and Hezbollah have not materialized into a ground offensive. Tensions remain high, particularly after a proposed 21-day ceasefire deal was rejected. Meanwhile, Houthi rebels in Yemen have intensified their attacks on shipping in the Red Sea, leading to reports of an oil tanker adrift and ablaze.
Israeli Defense Forces chief Herzi Halevi has warned troops to prepare for a potential ground offensive in Lebanon, which could heighten risk aversion and drive more investors towards gold. Despite a recent pullback after hitting an all-time high of $2,685 on Thursday, gold remains in an overall uptrend across short, medium, and long-term perspectives.
Technical analysis suggests that while gold is currently overbought according to the Relative Strength Index (RSI), indicating a potential for a deeper pullback, it can remain overbought in a strong trending market. Should gold break through higher resistance levels, it would reinforce its bullish outlook, with targets set at $2,700 and $2,750. Should a correction occur, key support levels are identified at $2,600, $2,550, and $2,544 (the 0.382 Fibonacci retracement of the September rally).