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Gold price keeps the red below record high, downside seems limited ahead of US PCE data

  • Gold price pulls back from record high amid elevated US bond yields and smaller Fed rate cut bets.
  • US political jitters and Middle East tensions might continue to act as a tailwind for the XAU/USD.
  • Traders keenly await the release of the US PCE Price Index before placing fresh directional bets.

Gold price (XAU/USD) maintains its offered tone through the early European session on Thursday amid a further rise in the US Treasury bond yields. Apart from this, bets for a less aggressive policy easing by the Federal Reserve (Fed) turn out to be key factors exerting some downward pressure on the non-yielding yellow metal. Any meaningful corrective slide for the commodity, however, seems elusive in the wake of the uncertainty surrounding the US presidential election and Middle East tensions.

Adding to this, the risk-off impulse – as depicted by a generally weaker tone around the equity markets – continues to offer some support to the safe-haven precious metal. Traders also seem reluctant and might prefer to wait on the sidelines ahead of the release of the US Personal Consumption Expenditure (PCE) Price Index. This, along with the Nonfarm Payrolls (NFP) report on Friday, should provide cues about the Fed's interest rate outlook and provide a fresh directional impetus to the XAU/USD.

Daily Digest Market Movers: Gold price is pressured by rising US bond yields, ahead of US PCE Price Index

  • The Automatic Data Processing (ADP) reported on Wednesday that private sector employers added 233K new jobs in October as compared to the previous month's upwardly revised reading of 159K and better-than-expected consensus estimates. 
  • The data points to a resilient labor market, which, along with a series of upbeat US data released recently, suggested that the economy remains on strong footing and supports prospects for a less aggressive easing by the Federal Reserve. 
  • Separately, the US Bureau of Economic Analysis' initial estimate suggested that the world's largest economy expanded by a 2.8% annualized pace during the third quarter, slower than the 3% growth recorded during the April-June period.
  • The markets are still pricing in a regular 25 basis points interest rate cut by the Fed in November, which, along with deficit-spending concerns after the US election, continues to push the US Treasury bond yields higher on Thursday. 
  • The yield on the benchmark 10-year US government bond hovers just below 4.3%, near its highest level since July, which helps revive the US Dollar demand and acts as a headwind for the Gold price amid slightly overbought conditions.
  • Thursday's release of the US Personal Consumption Expenditure (PCE) Price Index might influence the Fed's rate-cut path and drive the USD demand, which, in turn, should provide some meaningful impetus to the commodity. 
  • The uncertainty ahead of next week's US presidential election and escalating geopolitical tensions in the Middle East suggest that the path of least resistance for the safe-haven precious metal remains to the upside. 

Technical Outlook: Gold price needs to consolidate or retreat a bit before the next leg up amid overbought RSI

From a technical perspective, the recent move up along an upward-sloping channel from the August monthly swing low points to a well-established short-term bullish trend. That said, the Relative Strength Index (RSI) on the daily chart is already flashing overbought conditions. Hence, any subsequent move up is more likely to remain capped near the $2,800 mark. The said handle represents the top boundary of the channel, which if broken decisively will be seen as a fresh trigger for bulls and set the stage for an extension of the appreciating move. 

On the flip side, any meaningful corrective decline now seems to find decent support near the $2,750-2,748 region or a trading range resistance breakpoint. Some follow-through selling could make the Gold price vulnerable to extend the fall further towards the $2,732-2,730 intermediate support en route to the $2,715 area. This is followed by the $2,700 mark, which if broken should pave the way for a decline towards the next relevant support near the $2,675 zone en route to the $2,657-2,655 region.

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: Thu Oct 31, 2024 12:30

Frequency: Monthly

Consensus: 2.6%

Previous: 2.7%

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.

Author

Haresh Menghani

Haresh Menghani is a detail-oriented professional with 10+ years of extensive experience in analysing the global financial markets.

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