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Gold Price Forecast: Trades near two-month low ahead of US PCE Inflation data

  • Gold price faces significant selling pressure as renewed Middle East tensions prompt oil prices.
  • Iran’s IRGC retaliates by attacking the US military bases after Washington struck near Bandar Abbas airport.
  • Investors await the US PCE inflation data for April.

Gold price (XAU/USD) trades 1.43% lower to near $4,390 during the European trading session on Thursday, close to its fresh two-month low of $4.366.56 posted earlier in the day. The precious metal faces intense selling pressure as renewed Middle East crisis have prompted oil prices.

Earlier in the day, Iran’s Islamic Revolutionary Guard Corps (IRGC) said that it attacked US military bases in the Gulf region in retaliation to Washington’s strikes near Bandar Abbas airport and threatened a more decisive response if it attacks again.

Theoretically, escalating geopolitical tensions improve demand for safe-haven assets, such as Gold; however, it has been underperforming since the Middle East war started.

The reasoning behind the lower Gold price is elevated energy prices, which have prompted United States (US) inflationary pressures and have forced traders to pare dovish Federal Reserve (Fed) bets. As measured by the Consumer Price Index (CPI), the US headline inflation arrived higher at 3.8% Year-on-Year (YoY) in April, the highest level seen in almost three years.

According to the CME FedWatch tool, the odds of the Fed holding interest rates at their current levels this year are 43.1%, while the rest favor at least one interest rate hike this year. This is a sharp turnaround from two interest rate cuts anticipated before the Middle East war started.

The scenario of rising hawkish Fed bets bodes well for yields on interest-bearing assets, which eventually diminishes the appeal of non-yielding assets, such as Gold.

Meanwhile, investors await the US Personal Consumption Expenditure Price Index (PCE) data for April, which will be published at 12:30 GMT. Investors will pay close attention to the US PCE Inflation data to get fresh cues on the Fed’s monetary policy outlook.

The US PCE inflation is expected to have grown at a faster pace of 3.8% Year-on-Year (YoY) against the previous reading of 3.5%.

Gold technical analysis

XAU/USD trades lower at around $4,390, maintaining a bearish near-term bias as price holds below the 20-day Exponential Moving Average (EMA) at $4,567.61. The precious metal remains under persistent selling pressure after a series of lower closes, while the Relative Strength Index (14) slips toward oversold territory near 35, which hints that downside momentum is still dominant but could be nearing fatigue.

On the topside, the 20-day EMA at $4,567.61 is the first key resistance and needs to be reclaimed to ease the current downside pressure and open the way for a stronger recovery towards the May 15 high at $4,665. Looking down, the Gold price could have a fresh leg of decline towards the March 23 low at $4,098.88 if it closes decisively below the two-month low of $4.366.56.

(The technical analysis of this story was written with the help of an AI tool.)

Gold FAQs

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.

Author

Sagar Dua

Sagar Dua

FXStreet

Sagar Dua is associated with the financial markets from his college days. Along with pursuing post-graduation in Commerce in 2014, he started his markets training with chart analysis.

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