Gold prices have held onto recent gains early Friday, eyeing a potential fourth consecutive monthly increase. The US Dollar has regained some strength amid a cautious market mood, despite weak US Treasury bond yields. The daily Relative Strength Index (RSI) is hovering around the 50 level, while gold prices have managed to maintain support at the key 50-day Simple Moving Average (SMA) of $2,328.
Currently, gold prices are consolidating within a narrow range near $2,350, as traders await the US Core Personal Consumption Expenditure (PCE) Price Index— the Federal Reserve’s preferred inflation measure— for new directional signals.
Focus on US PCE Inflation Data
Market expectations for more than one Federal Reserve interest rate hike this year have significantly decreased due to persistent inflation and recent hawkish comments from the Fed. The CME FedWatch Tool indicates a 50% probability that the Fed will maintain current rates in September, while there is a 64% chance of a rate cut in November.
Hawkish Fed expectations had previously boosted demand for the US Dollar, driving US Treasury bond yields to multi-week highs. However, Thursday’s downward revision of the annualized first-quarter US Gross Domestic Product (GDP) from 1.6% to 1.3%, alongside a modest increase in Initial Jobless Claims, has tempered the Dollar’s rise and led to a sell-off in both the Greenback and Treasury yields.
This environment has allowed gold prices to make a modest recovery after suffering steep losses on Wednesday. The future direction of gold prices will likely depend on the US Core PCE inflation data set to be released later on Friday. The Core PCE Price Index is expected to increase by 2.8% year-on-year in April, matching March’s pace.
Potential Market Reactions
A surprise increase in the Core PCE figure could reinforce expectations of a delayed and less aggressive Fed rate cut, potentially boosting the US Dollar and pushing gold prices lower. Conversely, if the Core PCE inflation data is unexpectedly weak, it could strengthen bets for a Fed rate cut in September, supporting a rebound in gold prices.
On the daily chart, the gold price recovery is capped below the 21-day SMA at $2,355, while buyers continue to defend the key 50-day SMA support at $2,328. The 14-day RSI’s position near the 50 level suggests no clear directional bias.
A stronger-than-expected Core PCE inflation report could trigger a break below the 50-day SMA at $2,328, opening the door for a decline towards the $2,300 mark. The next significant support is at the May 3 low of $2,277.
Alternatively, if gold prices rise above the 21-day SMA at $2,355, they could aim to reclaim the former rising wedge support-turned-resistance at $2,376, particularly if the inflation data is softer than anticipated. Breaking through this level could set the stage for a challenge of the May 24 high of $2,384.
