Gold Price Remains Above $2,300 as Core PCE Inflation Data Looms

The price of gold is holding firm above $2,300, rebounding from $2,315 as the US Dollar faces downward pressure. Investors are increasingly convinced that the Federal Reserve will implement two interest rate cuts this year. The outlook for the US economy has improved, with preliminary PMI data indicating faster expansion in June.

Gold Price Rebounds Amid USD Weakness

In the American session on Monday, gold prices (XAU/USD) attracted buying interest around $2,315. This uptick came as the US Dollar (USD) experienced a correction, fueled by strong speculation that the Federal Reserve (Fed) will cut interest rates twice this year. The US Dollar Index (DXY), which measures the USD against six major currencies, fell to 105.60. This decline was driven by expectations of rate cuts, which gained traction as inflationary pressures in the US eased.

Easing Inflation Supports Rate Cut Expectations

The US Consumer Price Index (CPI) report for May revealed a greater-than-expected deceleration in price pressures. Similarly, the preliminary S&P Global Purchasing Managers Index (PMI) report for June showed a moderate cooling in cost growth. According to the report, “Selling price inflation cooled to a five-month low in June. The rate of increase fell to a five-month low in the services sector, where the rise was among the lowest seen over the past four years, and a six-month low in manufacturing.”

The CME FedWatch tool indicates that the Fed is likely to begin easing monetary policy at its September meeting, with additional rate cuts expected in November or December. The 30-day Federal Funds futures data suggest a 66% probability of a rate cut in September.

Fed’s Policy-Easing Prospects

During the early New York session, Chicago Fed Bank President Austan Goolsbee commented that a slowdown in inflation could pave the way for policy easing. Goolsbee expressed optimism about further improvements in inflation data, hoping that the Fed would gain more confidence in inflation returning to the 2% target.

However, rising US bond yields could exert pressure on gold prices. According to the dot plot chart from the June FOMC economic projections, Fed policymakers anticipate only one rate cut this year, contrary to market expectations. They aim to see sustained declines in inflation before shifting to policy normalization. The 10-year US Treasury yield has bounced back to 4.27%, increasing the opportunity cost of holding non-yielding assets like gold.

Daily Market Movers: Gold Price Trends Higher as USD Corrects

Gold prices found support near $2,315 after a sharp decline on Friday. The precious metal had faced significant selling pressure as the USD strengthened following the release of the preliminary S&P Global PMI report for June. The unexpectedly positive PMI report indicated that economic activity expanded at a faster pace, driving the USD higher and making gold a more expensive option for currency holders.

The report highlighted that the Composite PMI surged to 51.7, surpassing expectations of a decline to 51.0 from the previous 51.3. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence, stated, “The PMI is running at a level broadly consistent with the economy growing at an annualized rate of just under 2.5%. The upturn is broad-based, as rising demand continues to filter through the economy. Although led by the service sector, reflecting strong domestic spending, the expansion is supported by an ongoing recovery in manufacturing, which is experiencing its best growth spell in two years.”

This week, investors will closely watch the revised Q1 Gross Domestic Product (GDP) data and the core Personal Consumption Expenditure (PCE) price index for May. The core PCE price index is the Fed’s preferred measure of inflation and will provide crucial insights into the timing and extent of potential rate cuts this year.

Geopolitical Tensions and Global Market Impact

On the global front, the security pact between Russian President Vladimir Putin and North Korean leader Kim Jong-un in Pyongyang has heightened geopolitical tensions. The treaty covers political, trade, investment, and security cooperation, with both nations pledging immediate military assistance if the other is attacked. This development could limit the downside for gold prices as global tensions rise.

Technical Analysis: Gold Price Balances Above 50-day EMA

Gold prices have been consolidating between $2,277 and $2,450 for over two months. The 50-day Exponential Moving Average (EMA) near $2,318 continues to provide support for gold price bulls. The 14-day Relative Strength Index (RSI) oscillates between 40.00 and 60.00, indicating indecisiveness among market participants.

A break below the May 3 low around $2,277 could put gold prices under pressure, exposing the March 21 high at $2,223. Conversely, a break above the May 20 high of $2,450 could propel gold into uncharted territory.

Conclusion

The gold price remains resilient above $2,300, supported by easing inflation and expectations of Fed rate cuts. While rising US bond yields pose a potential challenge, geopolitical tensions and positive economic indicators provide a mixed outlook for the precious metal. Investors will continue to monitor key economic data and global developments to gauge the future direction of gold prices.

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