Title: Gold Slides Amid Anticipation of US Inflation Data and Hawkish Fed Expectations
Author: Based on original reporting by Anil Panchal from FXStreet
Gold prices are retreating as investor sentiment turns cautious ahead of key US inflation data, particularly the Personal Consumption Expenditures (PCE) Price Index. This core inflation measure, closely monitored by the Federal Reserve, could reinforce expectations that interest rates will stay elevated for an extended period. A stronger-than-expected reading would support the US dollar and Treasury yields, putting further pressure on non-yielding assets like gold.
The bearish bias surrounding gold has been steadily building, driven by several macroeconomic factors. Despite geopolitical tensions that traditionally bolster the appeal of safe-haven assets like gold, the precious metal has struggled to gather momentum. Investors now await crucial macroeconomic releases that could determine the next direction for gold prices.
Gold at a Glance
– Current Status: As of October 24, gold (XAU/USD) was trading around $1,971 per ounce, edging lower on the day.
– Weekly Trend: The metal is aiming to avert its first weekly decline in about three weeks.
– Monthly Trend: Gold remains higher month-over-month, supported by safe-haven flows earlier in October.
– Short-Term Resistance: The $2,000 psychological level remains a significant barrier.
– Support Levels: Initial support lies near $1,960; further downside could take it toward $1,932 and then $1,900.
– Technical Outlook: Gold is below its 38.2% Fibonacci retracement level of the October upswing, indicating growing bearish momentum.
Primary Influences on Gold Prices
1. US Dollar Strength
– The US Dollar Index (DXY), which measures the greenback against a basket of six major currencies, remains elevated above the 106.00 level.
– The sustained strength of the dollar is reducing overseas demand for dollar-denominated assets like gold. A stronger dollar generally makes gold more expensive for foreign investors.
2. Treasury Yield Behavior
– The US 10-year Treasury yield continues to hover around 4.85%, near a 16-year high reached in early October.
– Yields reflect higher expected returns on risk-free assets, diminishing gold’s relative appeal, as the metal provides no income or yield.
3. Expectations of Federal Reserve Policy
– Investors are increasingly accepting the “higher-for-longer” narrative pertaining to US interest rates.
– According to the CME FedWatch Tool, markets assign a high probability that the Federal Reserve will keep rates steady at its November meeting. However, there is still perceived risk of a tightening bias due to persistent inflation.
– Fed officials, including Chair Jerome Powell, have not ruled out future hikes if inflation fails to return to the 2% target.
4. Anticipation of PCE Inflation Data
– Scheduled to be released on Friday, the Core PCE Price Index will be scrutinized to assess whether inflation is cooling.
– Forecasts expect a 3.7% year-over-year rise, aligning with the previous print. If inflation is stickier than expected, markets may further price in restrictive Fed policy, pressuring gold downside.
– The PCE figure has become the Fed’s preferred inflation gauge, making this week’s release particularly crucial.
5. Geopolitical Concerns
– Ongoing tensions in the Middle East, particularly between Israel and Hamas, create intermittent demand for safe-haven assets.
– However, geopolitical risk premiums have so far proven insufficient to offset hawkish Fed expectations.
Technical Analysis
Gold’s technical picture has recently shifted to a more bearish outlook, with consolidation near key resistance levels hinting at a possible retracement. Traders are closely watching the $1,984 to $1,988 rejection area and key Fibonacci levels for clues on future movement.
Key Levels:
– Resistance:
– $1,984: 38.2%
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