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Gold remains under pressure ahead of key US macro data

  • Gold price eyes more downside amid caution ahead of US core PCE Price Index data.
  • Apart from the US underlying inflation data, investors will focus on Durable Goods Orders and Q1 GDP.
  • The US Dollar corrects as a weak PMI report for April dampens investors’ confidence in the strong US economic outlook.

Gold price (XAU/USD) retreats to $2,315 in Wednesday’s early New York session while attempting to extend recovery above $2,320. The near-term appeal of the precious metal remains weak as safe-haven demand wanes amid easing Middle East tensions. Also, investors turn cautious for bullions ahead of the United States Q1 Gross Domestic Product (GDP) release and the core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published on Thursday and Friday, respectively.

The Q1 GDP and the underlying inflation will provide further cues about when the Federal Reserve (Fed) will begin reducing interest rates. The US core PCE Inflation, the Fed’s preferred inflation gauge, is estimated to have grown steadily by 0.3%, with annual figures softening to 2.6% from 2.8% recorded for February. The Gold price could face a sharp sell-off if the underlying inflation data comes in hotter than expected. 

US inflation indicators such as Consumer Price Index (CPI) and wage growth have remained high in the first quarter. Further signs of persisting price pressures would allow the Fed to continue with their argument of keeping interest rates at the current levels for a longer period. Historically, this scenario bodes well for the US Dollar and bond yields, and makes Gold less attractive.

Daily digest market movers: Gold price remains weak amid multiple headwinds

  • Gold price remains on the back foot as safe-haven demand has diminished after investors shrugged off Middle East fears amid no further escalation in tensions between Iran and Israel.
  • The precious metal got some relief after plunging to $2,300 as the US Dollar weakened after the release of the weak S&P Global preliminary PMI data for April. The report showed that surprisingly both Manufacturing and Services PMI were down from the prior readings. The Manufacturing PMI even fell below the 50.0 threshold, signalling a contraction. 
  • The US economic outlook from the agency was slightly gloomy, indicating the consequences of higher interest rates by the Federal Reserve. Chris Williamson, Chief Business Economist at S&P Global Market Intelligence said: “The US economic upturn lost momentum at the start of the second quarter, with the flash PMI survey respondents reporting below-trend business activity growth in April. Further pace may be lost in the coming months, as April saw inflows of new business fall for the first time in six months and firms’ future output expectations slipped to a five-month low amid heightened concern about the outlook.” 
  • However, the near-term outlook of Gold is bearish as Fed policymakers see the current monetary policy framework as appropriate due to strong labor demand and persistent price pressures. The Gold price could turn sideways as investors shift focus to the US core PCE Price Index data for March, which will influence speculation about when the Fed will pivot to interest rate cuts. Currently, traders expect that the Fed will start reducing interest rates from the September meeting.
  • Meanwhile, the US Census Bureau has reported upbeat Durable Goods Orders for March. Orders for Durable Goods rose sharply by 2.6%  from February’s reading of 0.7%, downwardly revised from 1.4%. Durable Goods are those with a long life span and are a leading indicator of core CPI as it excludes prices of non-durable goods such as food and energy. Higher orders for Durable Goods indicate a strong demand by households, which allows factories to raise their prices at factory gates. 

Technical Analysis: Gold price strives for support near $2,300

Gold price struggles for a firm footing near $2,300. The precious metal remains on tenterhooks after sliding to near the 20-day Exponential Moving Average (EMA), which trades around $2,313. The yellow metal could fall to a three-week low near $2,265 amid multiple headwinds. A breakdown below the three-week low of $2,265 would expose the asset to March 21 high at $2,223.

The 14-period Relative Strength Index (RSI) falls below 60.00, suggesting that a bullish momentum has ended. However, the upside bias is intact until it sustains above 40.00.

Fed FAQs

Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.

The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.

In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.

Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.


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