**Gold Prices Stumble Ahead of Crucial US Inflation Data: Market Sentiment Turns Cautious**
*Originally reported by Christian Borjon Valencia | Source: FXStreet*
Gold prices took a bearish turn as traders exercised caution ahead of an important round of U.S. inflation data due later in the week. The precious metal, which has traditionally served as a safe haven in turbulent economic times, slipped during early Tuesday trading amid market hesitation and a modest rebound in U.S. Treasury yields.
With volatility underlying global markets ahead of economic data from the U.S., the yellow metal is struggling to retain its recent gains. This article will explore the recent gold price action, the macroeconomic forces in play, and what to expect going forward in the precious metals market.
## Overview of Gold’s Recent Performance
Spot gold (XAU/USD) began Tuesday’s European session on a weakening note, trading just above $1,970 per ounce after dropping from recent highs of around $1,992. This marked a continuation of the pullback seen since the start of the week, with rising yields and the stronger U.S. dollar pressuring bullion prices.
The cautious sentiment stems from a broader global anticipation of the U.S. Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s preferred measure of inflation. Scheduled for release later this week, this inflation report is expected to play a pivotal role in the central bank’s policy direction.
### Performance Highlights
– Gold fell nearly $10 in early European trading on Tuesday, reaching lows near $1,969 per ounce.
– The U.S. Dollar Index (DXY) gained modestly, hovering around 106.20, further weighing on bullion.
– 10-year U.S. Treasury yields inched slightly higher toward 4.85 percent, dampening non-yielding gold’s appeal.
– Weakening geopolitical tensions in the Middle East have also contributed to decreased safe-haven demand for gold.
## Macroeconomic Factors Influencing Gold Prices
Gold investors are bracing for one of the most closely-watched economic reports of the month—the U.S. Core PCE Price Index. This report could determine the future trajectory of interest rates and, by extension, the direction of gold prices.
The following macroeconomic variables are currently exerting downward pressure on gold:
### 1. Upcoming U.S. Inflation Data
The U.S. Core PCE data, expected on Friday, could show whether inflationary pressures are persisting or easing. An upside surprise in the index would likely fuel expectations of another rate hike by the Federal Reserve.
According to Reuters consensus forecasts:
– Core PCE for September is expected to come in at 3.7 percent year-over-year, down slightly from 3.9 percent in August.
– Month-over-month Core PCE is forecasted at 0.3 percent, mirroring last month’s reading.
If the actual data comes in hotter than expected, markets could reprice the likelihood of an additional Fed rate hike before year-end. Higher interest rates typically increase the opportunity cost of holding gold, making it less attractive to investors.
### 2. U.S. Treasury Yields
Rising U.S. government bond yields continue to be a major headwind for gold. The benchmark 10-year Treasury yield has been trading near multi-year highs above 4.8 percent, reaching levels not seen since 2007.
Why this matters:
– Gold is a non-yielding asset, and when bond yields climb, investors tend to shift resources away from gold to fixed-income securities.
– As yields increase, the real interest rate rises, making gold less competitive as an investment.
– Should yields stabilize or decline, gold may find renewed support.
### 3. U.S. Dollar Strength
Another pressing challenge for gold is the recent strength in the U.S. dollar index. A strong dollar typically depresses gold demand because it makes the metal more expensive for foreign investors holding other
Read more on USD/CAD trading.