Gold trades at record high ahead of US PCE inflation release

• The upcoming PCE Price Index release is expected to have a nuanced impact on the gold market.

• Gold prices tend to benefit from a weakening USD, as it makes the gold cheaper for foreign investors.

• The technical outlook for gold remains bullish, with prices reaching new records.

The release of the upcoming Personal Consumption Expenditures (PCE) Price Index by the United States Bureau of Economic Analysis is expected to have a nuanced impact on the gold market. While the PCE is the Federal Reserve’s preferred inflation gauge, and any deviation from expectations can momentarily influence the US Dollar (USD), it is unlikely to result in a major shift in the central bank’s interest rate policy. For the gold market, which is highly sensitive to interest rate changes and USD fluctuations, this means that the immediate reaction may be muted unless there is a significant surprise in the data. A modest increase in the core PCE index, as projected, is unlikely to alter the broader outlook on the Fed's policy path, leaving gold prices in a relatively stable zone.

Nevertheless, in the medium to long term, the PCE data will still shape the narrative around inflation expectations and, consequently, the demand for gold as a hedge against inflation. If the core PCE continues to trend upward, even slightly, it could reinforce the view that inflationary pressures remain persistent, potentially prompting a more cautious stance from investors. In such a scenario, gold could see increased demand as a safe-haven asset, especially if market sentiment shifts to concerns about sustained inflation rather than just a transitory spike. This is because gold historically serves as a store of value during periods of rising prices, and any sign of prolonged inflationary pressures would elevate its appeal.

Additionally, with the USD expected to remain relatively stable due to the Fed’s current monetary policy stance, the impact on gold might be further influenced by shifts in global investor sentiment and external factors, such as geopolitical risks and economic uncertainties. A weakening USD typically supports gold prices by making it cheaper for foreign investors. However, if the Fed’s focus transitions more heavily to labor market data, gold’s price dynamics could become more unpredictable, as employment figures might introduce additional volatility to the broader financial markets. Therefore, while the immediate impact of the PCE data on gold may be limited, its longer-term influence will depend on how it shapes the broader inflation narrative and Fed expectations moving forward.

Gold technical outlook

The technical outlook for gold remains strongly bullish, as prices are trending higher after breaking out of the seasonal consolidation observed from April to June. These consolidations occurred within a rising channel, and each time prices bottomed within this channel, a double bottom pattern formed. The double bottoms in June and August suggest that prices are likely to continue rising. However, the price is now approaching our short-term target range of $2,700 to $2,800, indicating that short-term traders should exercise caution at these levels. Despite this, the overall trend remains upward, and investors may consider adding positions to buy into the gold market with expectations of higher prices.

Bottom line

In conclusion, while the upcoming PCE Price Index release may have a limited immediate impact on the gold market, its longer-term influence could be significant depending on how it shapes inflation expectations and the Federal Reserve's policy stance. If inflationary pressures persist, gold’s appeal as a hedge could strengthen, leading to increased demand. The technical outlook for gold remains bullish, with prices trending higher after breakout from rising channel, suggesting continued upward momentum. However, as prices approach key resistance levels, short-term caution is warranted, while long-term investors may still find value in maintaining a bullish outlook on gold.

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