Home » Gold price recovers as Middle East tensions escalate, US core PCE inflation in focus

Gold price recovers as Middle East tensions escalate, US core PCE inflation in focus

by FX BrokerNews
  • Gold price rebounds sharply even though Fed policymakers maintain a hawkish narrative.
  • The US Dollar remains firm as market expectations for early Fed rate cuts ease.
  • Investors await the US core PCE inflation data for fresh guidance.

In the early New York session on Wednesday, Gold prices (XAU/USD) showed robust buying interest, despite indications from Federal Reserve (Fed) policymakers that they are not considering lowering interest rates in the first half of 2024. The potential for higher interest rates is generally negative for Gold, as it increases the opportunity cost of holding the non-yielding precious metal.

Investors are closely monitoring the United States core Personal Consumption Expenditure price index (PCE) data for January, scheduled for release on Thursday, for insights into the timing of potential rate cuts. If the underlying inflation data proves to be stickier than expected, market expectations for rate cuts may be adjusted, potentially leading to a downside movement in Gold prices.

On the geopolitical front, tensions between Israel and Hamas escalated, with both nations downplaying expectations of a ceasefire. Hamas, backed by Palestine, reported firing rockets toward northern Israel.

Despite the release of downbeat US Durable Goods Orders data for January on Tuesday – showing a 6.1% decline against the projected 4.5% decrease – Gold prices did not see significant gains. The weak demand for durable goods signals a less optimistic outlook for consumer spending.

Daily Digest Market Movers: Gold price bounces back while US Dollar remains firm

Gold prices have rebounded, surpassing $2,030 amid escalating geopolitical tensions. Investors are closely monitoring the United States core PCE price index data for January, scheduled for Thursday release. This inflation data will provide insights into potential shifts in the Federal Reserve’s monetary policy stance. Expectations are for the core PCE price index to grow by 0.4% month-on-month in January, compared to a 0.2% increase in December. Annually, forecasts indicate a deceleration to 2.8% from December’s 2.9%.

If inflation remains persistent, it could support the argument for the Federal Reserve to maintain restrictive interest rates in the first half of 2024. Despite some market expectations for rate cuts, the majority of Fed policymakers are aligned in wanting more evidence of sustained inflation before considering any rate adjustments.

The CME FedWatch tool suggests that interest rates will likely stay within the range of 5.25%-5.50% in the March and May policy meetings. Traders see a 50% chance of a 25 basis points rate cut in the June meeting.

Federal Reserve Governor Michelle Bowman echoed the sentiment of keeping interest rates steady, emphasizing the need for caution to avoid stalling progress in inflation easing towards the 2% target. Strong inflation readings in January and a tight labor market indicate a slower pace in inflation declining to 2%.

While the US Dollar Index (DXY) initially paused following the second estimate of Q4 Gross Domestic Product (GDP) growth at 3.2%, just below the expected 3.3%, it has since surged above 104.00. The uncertainty surrounding US economic data has enhanced the appeal of safe-haven assets.

Technical Analysis: Gold price rebounds toward $2,040

Gold prices are approaching the lower boundary of the Symmetrical Triangle pattern, formed by connecting the high on December 28 at $2,088 and the low on December 13 at $1,973. The pattern consists of a downward-sloping border and an upward-sloping border.

The potential for a breakout exists in either direction, but the likelihood slightly favors an upward move, aligning with the trend preceding the formation of the triangle. A definitive breach above or below the boundaries would signify the commencement of a breakout.

The 14-period Relative Strength Index (RSI) is oscillating within the 40.00-60.00 range, indicative of investor indecision.

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