HG MARKETS:

Gold prices are on track for their fourth consecutive monthly gain, despite lacking significant momentum ahead of a key U.S. inflation report. This continued rise is driven by central bank purchases and ongoing geopolitical uncertainties, highlighting gold’s role as a safe-haven asset.

The market is now focused on the U.S. core Personal Consumption Expenditures (PCE) price index, the Federal Reserve’s preferred measure of inflation. The data is expected to show a slight annual decline to 2.7% and a monthly increase of 0.2%. These figures would suggest gradual progress toward the Fed’s 2% inflation target, offering crucial insights into potential future rate cuts.

Economists anticipate modest improvements in the inflation data, reflecting a stabilizing economy. The recent Commerce Department report showed first-quarter PCE inflation rising by 3.3% overall and 3.6% on the core measure, slightly below initial estimates. Although these figures are higher than the Fed’s target, they indicate a gradual reduction in price pressures. Fed officials, including New York Fed President John Williams, are optimistic about inflation trends, forecasting core PCE inflation to drop to about 2.5% by the end of 2024. However, recent hawkish statements from Fed members suggest a cautious approach to rate cuts, with a single cut possibly expected in November.

Gold prices have remained stable, supported by weaker-than-expected U.S. GDP data and reduced expectations for immediate rate cuts. A stronger-than-expected PCE reading could temporarily pressure gold prices, but the broader upward trend is likely to continue, with strong support around the $2,300 level. U.S. Treasury yields have eased as investors await the PCE data, reflecting heightened sensitivity to inflation trends and Fed policy signals. The Fed’s gradual progress toward its inflation target, coupled with ongoing geopolitical risks, continues to bolster gold’s appeal as a safe-haven investment.

Considering the mixed economic signals and the Fed’s cautious stance, gold prices are expected to remain bullish in the near term. An unexpected rise in PCE data could create short-term volatility, but overall market sentiment remains supportive of gold, driven by central bank purchases and persistent geopolitical uncertainties. Traders should monitor the PCE data release and Fed commentary for further insights into interest rate policy and its impact on gold. Essentially, a strong PCE number is expected to initially weigh on gold prices with limited downside potential, while a weaker PCE number is likely to support prices and could lead to new record highs in the near term.

A sustained move above $2327.47 will indicate the presence of buyers. If this generates enough upward momentum, expect a surge towards the pivot at $2387.80. Conversely, failure to hold above $2327.47 could signify a shift in trader sentiment, potentially triggering a quick drop to the short-term bottom at $2325.46. This could accelerate the decline towards the next target at $2277.34.