Gold price eyes recovery on softer-than-projected US core PCE inflation data

Gold price (XAU/USD) is expected to come out of the woods as the US Core Personal Consumption Expenditure – Price Index (PCE) report for December shows a slower pace growth in price pressures than what anticipated by market participants. The annual underlying inflation data slowed to 2.9% from expectations of 3% and the former reading of 3.2%. Monthly core PCE price index data grew by 0.2% as anticipated by the market participants. In Novemebr, the economic data rose slightly by 0.1%. Easing price pressures would escalate bets advocating for a rate-cut decision by the Federal Reserve (Fed) in the March monetary policy meeting.

It is going to a balancing act for Fed policymakers as economic indicators such as consumer spending, labor market and the Gross Domestic Product (GDP) have remained robust, which would allow them to advocate for higher interest rates at least for the first six months of 2024. 

Daily Digest Market Movers: Gold price aims recovery as Fed's preferred inflation gauge eases

• Gold price is expected to come out of the woods as the US Core Personal Consumption Expenditure – Price Index (PCE) for December remained softer than expectaions.
• The CME Fedwatch tool is showing that the chances in favour of a 25-basis point (bp) rate cut in March ahave rebounded to 50% after a slowdown in underlying price pressures.
• While struggle for Fed policymakers remain unabated as the US economy is resilient on multiple grounds.
• The US economy expanded at a robust pace of 3.3% in the final quarter of 2023 while market participants projected a slower growth rate of 2.0%. This has uplifted the economic outlook, which could keep price pressures elevated.
• US Treasury Secretary Janet Yellen said surprisingly strong economic growth came from higher productivity and robust consumer spending without escalating inflation risks.
• Going forward, market participants will shift their focus towards the Fed’s first monetary policy of 2024, which will be announced next week.
• The Fed is widely anticipated to keep interest rates unchanged in the range of 5.25-5.50% for the fourth time in a row. Investors will keenly focus on the timing of when the Fed will start reducing interest rates.
• Till now, Fed policymakers have been considering expectations of rate-cuts from March as “premature” due to resilient US economic prospects and stubborn inflationary pressures.
• Fed policymakers have been warning that rate cuts at this stage would be premature, which could lead to a surge in overall demand and dampen efforts made to bring down core inflation to its current 3.9% level.

Technical Analysis: Gold trades stabilizes above $2,020

Gold price continues to trade sideways in a limited range as the broader focus is on the Fed’s interest rate policy, which will be announced next week. The precious metal struggles to sustain above the 50-day Exponential Moving Average (EMA), which trades around $2,015.00. Fresh downside would appear if the asset drops below the psychological support of $2,000. Momentum oscillators indicate a sharp decline in volatility.