Gold Prices at Crossroads: PCE Inflation Data Looms Large
30 Nov 2023
Gold prices take a breather in proximity to a seven-month high, with attention turning to PCE inflation data.
Gold prices experienced a minor decline on Thursday, suggesting a temporary halt to the recent surge in the yellow metal. Market participants await further signals on U.S. monetary policy, particularly from a crucial inflation reading scheduled for later in the day.
Despite this, the price of gold stayed near a seven-month high reached earlier this week. Strong gains in November, fuelled by expectations of a less hawkish Federal Reserve, a weaker dollar, and increased safe-haven demand, have contributed to the metal’s resilience.
The Gold price (XAU/USD) encounters difficulty in gaining substantial momentum early in the European session on Thursday. It consolidates recent robust gains, reaching its highest level since May 5. Traders exhibit hesitancy, opting to await the crucial US inflation data release before committing to new directional positions. The US Personal Consumption Expenditures (PCE) Price Index is scheduled for later in the North American session, potentially influencing the Federal Reserve’s (Fed) future policy decisions. Consequently, this could impact US Dollar (USD) demand and offer significant momentum to the non-yielding yellow metal.
PCE inflation, more Fed cues in Focus.
Gold witnessed remarkable advances this week, propelled by statements from several Fed officials indicating that recent drops in inflation imply a reluctance to raise interest rates. Additionally, a potential further decline in inflation could prompt the central bank to consider rate cuts in early 2024.
The trend indicated a reduction in pressure on gold stemming from elevated interest rates, a market dynamic that had negatively impacted the yellow metal for the past 18 months.
However, markets are currently anticipating additional signals on U.S. inflation through the PCE price index data for October, scheduled for later in the day. This reading serves as the Federal Reserve’s preferred inflation gauge and is expected to influence the bank’s position on interest rates in the upcoming months.
Additionally, attention was directed towards an impending speech by Fed Chair Jerome Powell on Friday—his last communication before the two-week blackout period leading up to December’s Fed meeting. It is widely anticipated that the central bank will maintain interest rates during its final meeting of the year.
The potential reduction in U.S. interest rates, especially the possibility of early rate cuts in 2024, is favourable for gold. This is because elevated interest rates increase the opportunity cost of purchasing bullion.