Gold consolidates ahead of the release of US PCE data

• Political uncertainty, including a looming U.S. government shutdown, could boost gold’s safe-haven appeal amid rising fiscal policy risks.

• Gold remains pressured by a stronger U.S. dollar and higher Treasury yields, capping significant upside momentum.

• The upcoming PCE data and geopolitical developments will play a crucial role in determining gold’s next short-term direction.

Gold prices managed to recover some of Wednesday’s losses on Thursday. The slight recovery comes after the Federal Reserve adopted a more cautious approach to monetary policy, ruling out multiple interest rate cuts in 2025. The price rebound from the support zone as investors focus on upcoming economic data and geopolitical risks.

Federal Reserve and inflation outlook

The Federal Reserve’s recent decisions continue to shape gold prices. On Wednesday, the Fed reduced borrowing costs by 25 basis points but signalled a slower pace for future rate cuts. Fed Chair Jerome Powell highlighted inflation as a key concern, with projections to 2.5% in 2025 and 2.2% in 2026. The dot plot suggests two rate cuts in 2025 and another in 2026.

Gold’s safe-haven appeal could strengthen if inflation remains high or the Fed delays its easing cycle. Additionally, the labour market remains solid, with Initial Jobless Claims dropping to 220,000, below the forecasted 230,000. These developments point to economic resilience, which may temper immediate gains in gold prices.

Political uncertainty and upcoming PCE data

Political turmoil in the US also influences gold prices. A potential government shutdown looms as lawmakers struggle to finalize a federal funding agreement. A shutdown would likely boost gold’s safe-haven demand, especially amid rising uncertainty over fiscal policies. President-elect Donald Trump and Republican leaders are negotiating a stop-gap plan, but the outcome remains unclear.

Ahead of the weekend, traders await the release of the core Personal Consumption Expenditures (PCE) Price Index, the Fed’s preferred inflation measure. This data, alongside the University of Michigan Consumer Sentiment poll, will play a key role in shaping gold’s short-term direction. While gold hovers around $2,600, rising real yields and a stronger U.S. dollar pose challenges for further gains. However, any surprise in PCE data or escalation in political uncertainty could push prices higher.

Gold price consolidation

From a technical perspective, the gold market remains consolidated, with prices fluctuating within wide ranges. This consolidation is attributed to seasonal factors, as December often exhibits choppy and overlapping market conditions. The strong resistance at $2,720 was tested, but prices have since broken below the $2,600 level.

With the PCE data set released on Friday, gold prices may rebound from current levels, though the upside could remain limited. A stronger U.S. dollar and rising U.S. Treasury yields exert pressure on the gold market, capping further upward momentum.

Bottom line

In conclusion, gold prices remain under pressure from a strong U.S. dollar and rising Treasury yields, limiting upside potential despite a slight recovery. The upcoming PCE data released on Friday will be crucial in determining the next move for gold. Political uncertainty in the U.S., including a potential government shutdown, adds to market risks and could support gold’s safe-haven appeal. While prices may rebound from current levels, resistance near $2,600 and $2,720 will likely cap gains in the short term. Traders will closely monitor economic and geopolitical developments to assess gold’s direction.

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