Gold Price Forecast: XAU/USD eyes US PCE inflation for a weekly close below 100 DMA

Gold price is attempting a tepid rebound from fresh two-month lows of $1,937 reached early Friday in the Asian session. A pullback in the United States Dollar (USD) from a two-month top, alongside the US Treasury bond yields, is helping Gold price stage a dead-cat bounce.  

US PCE inflation next of note for Gold price

Gold price has paused its sell-off just ahead of a critical daily support line, as the US Dollar rally takes a breather amid a mixed market mood, which has put a lid on the US Treasury yields’ upside.

The US Dollar is on track for a third straight weekly gain, helped by increased safe-haven flows, as the US debt-limit deadline approaches and the German economy slips into a winter recession. Supportive United States economic data released Thursday ramped up bets for a 25 basis points (bps) rate hike by the US Federal Reserve (Fed) next month.

US Jobless Claims for the week ending May 20 increased to 229,000 but came in lower than the market expectations of  245,000. Meanwhile, the United States GDP increased at an annualized rate of 1.3% in the first quarter of 2023, which is an increase from the first reading of 1.1% and above economists' estimates of 1.1%.

Markets are currently pricing a 39% probability that the Fed will increase interest rates by 25 bps in June, up from the 12% probability seen at the start of the week.

Signs of an emerging US debt deal also lifted sentiment around the US Dollar while driving US Treasury bond yields higher amid an improvement in the market mood. Reuters said in a report on Thursday that negotiations between congressional leaders and US President Joe Biden advanced, adding that both parties merely need to agree on $70 billion in spending.

Citing a US official, Reuters reported early Friday that Biden and House Speaker Kevin McCarthy are near the deal that would raise the debt ceiling for two years and cap spending on most items other than military and veterans. McCarthy said Wednesday that policymakers could get a debt agreement in principle this weekend.

Amidst US debt-deal optimism and the revival of hawkish Fed bets, the US Dollar is likely to hold the upper hand, although a minor correction from two-month highs cannot be ruled, with the end-of-the-week flows in play and ahead of the critical United States Core PCE Price Index data – the Federal Reserve’s preferred inflation gauge. The annual Core PCE figure is expected to increase 4.6% in April, at the same pace as seen in March.

Besides, Gold traders will closely scrutinize the US Durable Goods Orders data, incoming US debt-limit developments and Fedspeak for fresh trading impetus.

Gold price technical analysis: Daily chart

As observed on the daily chart, Gold price did manage to yield a break above the descending trendline resistance, then at $1,970, but failed to close Wednesday above the latter.

Therefore, Gold sellers received the much-needed impetus, extending the corrective downside below $1,950. 

At the time of writing, the bullish 100-daily moving average (DMA) at $1,935 is lending support to Gold buyers but it remains to be seen if they can defend the key support on a weekly closing basis.

The 14-day Relative Strength Index (RSI) is lurking below the midline, keeping sellers hopeful. Further, the 21 DMA is on the verge of cutting the 50 DMA from above, which if materialized on a daily candlestick closing basis will validate a Bear Cross, bolstering the downside bias in Gold price.

Gold bears will then target the March 17 low at $1,918 on sustained weakness in the bright metal.

On the flip side, immediate resistance is seen at the descending trendline, now at $1,954, above which the previous day’s high of $1,964 could be challenged.

Further up, the $1,970 static resistance could come into play.