Market update: gold eyes PCE, economic data after yields surge on hawkish FOMC speak

Gold prices are finding refuge during Asia-Pacific trading after steep losses; traders have US economic data in focus, including PCE and durable goods and COT data revealed that speculators are growing less confident in bullion.

Gold prices are staging a modest recovery during Asia-Pacific trading as equity markets search for direction following a selloff on Wall Street. Bullion prices fell more than 1% throughout New York trading as stocks moved lower and the US dollar moved higher. The Federal Reserve’s hawkish outlook on rate hikes has solidified in recent weeks, and FOMC speakers have made that very clear to markets.

On Monday, Cleveland Fed President Loretta Mester sounded more hawkish than ever, stating the Fed should “act more aggressively.” Ms. Mester went on to say, “Further increases in our policy rate will be needed,” speaking from the Massachusetts Institute of Technology. The 10-year Treasury yield rose to 3.931%, the highest point since April 2010. The US dollar saw broad strength as well, gaining around 1%. Stronger US yields and a higher dollar typically hurt gold’s appeal as an investment.

According to the CFTC’s Commitments of Traders (COT) report released on Friday, gold speculators scaled back their bullish by 12k contracts for the week ending September 20. That is the smallest position among non-commercial longs since June 2019. Shorts increased by 21.7k contracts, reducing the net long position to 60.7k. The movement shows that traders have grown less bullish on the metal.

However, the elevated short position also opens gold up to a possible rally if prices bounce and force shorts to cover.

The Personal Consumption Expenditures Price Index (PCE) for August is due later this week on September 30. Analysts expect the core PCE component—which excludes volatile food and energy prices—to rise 4.7% on a year-over-year basis in August. That would be up from 4.6% in July, not exactly an encouraging sign for the Federal Reserve.

A hotter-than-expected print would likely cripple gold prices further. Fed funds futures are currently pricing a 78.3% chance for a 75-basis point hike at the November 02 FOMC. Until then, US consumer confidence for September and durable goods orders for August may help to shed more light on the economy, which may impact FOMC rate hike bets and government bond yields.

This information has been prepared by DailyFX, the partner site of IG offering leading forex news and analysis. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.