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Gold Price Forecast: XAU/USD correction remains in the offing amid month/quarter-end flows

  • Gold price keeps its subdued Asian performance intact early Friday, as US PCE data loom.
  • The US Dollar recovers from the early dip, despite muted Treasury bond yields.
  • Extremely overbought conditions on the daily chart and month/ quarter-end flows risk Gold price correction.  

Gold price treads water while within a striking distance of the new record high of $2,686, as buyers take a breather and consolidate the weekly gains in the countdown to the US Personal Consumption Expenditures (PCE) Price Index data release later on Friday.

Gold price pauses record-rally, as correction risks lurk

Despite the recent dovish comments from US Federal Reserve (Fed) policymakers and mixed US economic data, market expectations for a 50 basis points (bps) interest rate cut in November ease, with the odds of such a move now standing at 50%, down from about 62% seen a day ago, the CME Group’s FedWatch Tool shows.

Fading bets of an outsized Fed rate cut at the next meeting seem to fuel a fresh US Dollar (USD) recovery, checking the record-setting rally in Gold price. However, Fed Governor Lisa Cook’s dovish remarks overnight and a risk-on market profile, courtesy of fresh Chinese stimulus measures, continue to limit the Gold price downside.

The next directional move in Gold price and the expectations of a large November Fed rate cut hinge on the upcoming Fed’s most preferred inflation gauge, the core PCE Price Index, due later in American trading on Friday. The US core PCE inflation is seen steady at 0.2% MoM in August while annually, the index is likely to tick higher a bit to 2.7% in the same period from July’s 2.6%.

A hotter-than-expected core PCE inflation data could push back expectations against a November rate reduction by the Fed, initiating a sustained recovery in the US Dollar against its major rivals from over one-yeat highs. In that case, a steep corrective decline could ensue in Gold price from near-lifetime highs. Conversely, a downside surprise in the core readings could ramp up the odds for a large Fed rate cut yet again, setting another record high in Gold price at the expense of the USD.

The reaction to the PCE inflation report, however, could be temporary as the end-of-the-month, as well as, the quarter-end flows could come into play and stir markets. Traders are also likely to resort to profit-taking in Gold price ahead of next week’s high-impact US Nonfarm Payrolls data.

Further, a speech by Fed Governor Michelle Bowman could add to the potential volatility around the Gold price.

Gold price technical analysis: Daily chart

Nothing changes for Gold price from a short-term technical perspective, as it remains in extremely overbought territory, suggesting that a meaningful correction could be in the offing.

The 14-day Relative Strength Index (RSI) is currently trading above the 76 level, warranting caution to buyers.

If buyers regain lost momentum, acceptance above the record high of $2,686 is critical to unleashing further upside toward the $2,700 barrier, followed by the $2,750 psychological mark.

Conversely, any correction in Gold price will likely test the September 24 low of $2,623, below which the $2,600 threshold will come into play.

Further south, Gold sellers could target the September 20 low of $2,585.

Economic Indicator

Core Personal Consumption Expenditures - Price Index (YoY)

The Core Personal Consumption Expenditures (PCE), released by the US Bureau of Economic Analysis on a monthly basis, measures the changes in the prices of goods and services purchased by consumers in the United States (US). The PCE Price Index is also the Federal Reserve’s (Fed) preferred gauge of inflation. The YoY reading compares the prices of goods in the reference month to the same month a year earlier. The core reading excludes the so-called more volatile food and energy components to give a more accurate measurement of price pressures." Generally, a high reading is bullish for the US Dollar (USD), while a low reading is bearish.

Read more.

Next release: Fri Sep 27, 2024 12:30

Frequency: Monthly

Consensus: 2.7%

Previous: 2.6%

Source: US Bureau of Economic Analysis

After publishing the GDP report, the US Bureau of Economic Analysis releases the Personal Consumption Expenditures (PCE) Price Index data alongside the monthly changes in Personal Spending and Personal Income. FOMC policymakers use the annual Core PCE Price Index, which excludes volatile food and energy prices, as their primary gauge of inflation. A stronger-than-expected reading could help the USD outperform its rivals as it would hint at a possible hawkish shift in the Fed’s forward guidance and vice versa.

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Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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