GOLD PRICE OUTLOOK
- Gold prices haven’t gone anywhere in recent days, though they are down more than 2% this year
- U.S. Core PCE data on Friday will likely guide the precious metal’s near-term outlook
- This article looks at XAU/USD’s key technical levels worth watching over the coming days
Most Read: US Dollar Mixed as GDP Data Smash Forecasts, Gloomy ECB Stands Pat
Gold prices (XAU/USD) inched higher on Thursday, supported by falling yields, which ticked down across the curve despite stronger-than-expected U.S. gross domestic product data.
Considering recent moves, bullion has lost more than 2% this year, but it has lacked directional conviction over the past few trading sessions. Volatility, however, could pick up heading into the weekend, with U.S. core PCE from December on tap Friday morning ahead of the FOMC announcement next week.
In terms of estimates, the Fed’s favorite inflation gauge is seen rising 0.2% m-o-m, bringing the year-over-year rate to 3.0% from 3.2% previously – a welcome development for policymakers.
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| Change in | Longs | Shorts | OI |
| Daily | -2% | 3% | 0% |
| Weekly | -19% | -4% | -14% |
UPCOMING US ECONOMIC DATA
Source: DailyFX Economic Calendar
With the U.S. economy still firing on all cylinders, as reflected by recent GDP and labor market data, traders should pay close attention to the inflation path. If only immaterial progress is seen in the disinflation trend, markets are likely to unwind overly dovish bets on the Fed’s policy path, a situation that could push yields higher and hurt precious metals.
On the other hand, if price pressures remain in a downward trajectory, the Fed will have fewer obstacles to begin removing policy restriction, placing a March rate cut fully back on the table even if economic activity continues to perform well. Any core PCI annual reading below the 3.0% threshold should have this effect on markets.
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GOLD PRICE TECHNICAL ANALYSIS
After falling to multi-week lows last week, gold has stabilized in recent days, although it hasn’t really gone anywhere, with prices wedged inside trendline resistance at $2,030 and horizontal support at $2,005. Breaking beyond these technical levels is crucial for large directional moves to unfold, otherwise consolidation becomes the most likely scenario.
Focusing on possible outcomes, a bullish breakout could send XAU/USD towards $2,065. On further strength, all eyes will be on $2,080. In the event of a bearish breakdown, the next line of defense against a pullback appears at $1,990, followed by $1,975, around the 100-day simple moving average. Additional losses from this point onward could draw attention to the 200-day simple moving average.
GOLD PRICE TECHNICAL CHART
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Unlocking the Market’s Potential: How Core PCE Data Will Shape the Upcoming Fed Decision
The Federal Reserve, also known as the Fed, is the central banking system of the United States. Among its many responsibilities, one of the most important is determining the monetary policy of the country. This includes setting interest rates and controlling the money supply in order to maintain economic stability and promote growth.
One of the key factors that the Fed considers when making these decisions is the Core Personal Consumption Expenditures (PCE) index. This index, which is a component of the larger PCE price index, is an important measure of inflation and consumer spending. It is often referred to as the Fed’s preferred inflation gauge and has a significant impact on their decisions.
In this article, we will explore the importance of Core PCE data and how it will shape the upcoming Fed decision. We will also discuss why investors and consumers should pay close attention to this data and its potential implications on the market.
Understanding Core PCE Data
Before we delve into the impact of Core PCE data on the Fed’s decisions, let’s first understand what this data represents. The PCE price index measures the change in prices of goods and services purchased by consumers. It includes both durable and non-durable goods, as well as services.
The Core PCE index, on the other hand, excludes the more volatile food and energy sectors, as they can have a large impact on overall inflation rates. This allows the Fed to get a more accurate picture of underlying inflation trends.
Why is Core PCE Data Important?
As mentioned earlier, Core PCE data is the Fed’s preferred measure of inflation. This is because it more accurately reflects the true cost of living for consumers. The Fed strives to maintain a stable inflation rate of around 2%, as this is seen as optimal for economic growth.
Therefore, when the Core PCE index rises or falls significantly, it can signal possible changes in the Fed’s monetary policy. If inflation levels are too high, the Fed may decide to increase interest rates to cool down the economy. On the other hand, if inflation is low, they may lower interest rates to stimulate economic growth.
In addition to its impact on monetary policy, Core PCE data also provides valuable insights into consumer spending patterns. As the index includes both durable and non-durable goods, it can indicate whether consumers are spending more or less on goods and services. This information is crucial for businesses and investors to understand consumer behavior and make strategic decisions.
The Upcoming Fed Decision and Core PCE Data
As the Fed prepares to make its next monetary policy decision, all eyes are on the Core PCE data. Recently, the index has been showing signs of increasing inflation. In March, the index rose by 0.4%, the largest monthly increase since January 2020. This trend continued in April, with a 0.6% increase, bringing the year-on-year increase to 3.6%.
These numbers suggest that inflation is picking up and may surpass the 2% target. This raises the question of whether the Fed will adjust their monetary policy in response.
Some experts believe that the Fed may start discussing tapering their bond-buying program, which has been helping to stimulate the economy during the pandemic. This could lead to a decrease in the money supply and potentially higher interest rates.
Others argue that it is too early to make any changes, as the increase in inflation may be temporary and caused by factors such as supply chain disruptions and pent-up consumer demand after lockdowns.
Implications for Investors and Consumers
The upcoming Fed decision has significant implications for both investors and consumers. Investors should closely monitor the Core PCE data and any updates from the Fed to prepare for potential changes in market conditions. An increase in interest rates could impact stock prices and other financial assets.
Consumers, on the other hand, should pay attention to inflation levels and be prepared for possible increases in prices for goods and services. Rising interest rates could also lead to higher mortgage rates, making it more expensive to borrow money for large purchases.
In Conclusion
Core PCE data is a key measure that the Fed considers when making monetary policy decisions. Its impact on inflation and consumer spending can have significant implications for the market and the economy as a whole. As we await the upcoming Fed decision, it is important to closely monitor the Core PCE data and stay informed about any changes that may affect investors and consumers alike.
