Gold prices anxiously await the Fed’s preferred inflation gauge, will XAU/USD fall?

Gold prices were little changed over the past 24 hours as bullion traders struggled to find direction in the aftermath of strong gains earlier this week.

The latter was triggered by actions from the Bank of England to temporarily inject liquidity into the financial system. This is to help avoid pension fund insolvency issues amid surging longer-term government bond yields.

To make a long story short, this triggered rising expectations that other central banks could follow in the BoE’s footsteps. Markets cut back hawkish 2023 Federal Reserve expectations, sending the US dollar lower as Treasury yields wobbled. When the latter two are falling simultaneously, this tends to bode well for the yellow metal.

A lack of follow-through since then could speak to lacking conviction. More to the point, XAU/USD traders are likely nervously awaiting US PCE data over the remaining 24 hours. This will contain the Fed’s preferred inflation gauge. A stronger surprise could easily revive 2023 rate hike bets, reversing the upward move in the yellow metal earlier this week.

For this reason, it seems traders are being prudent ahead of such crucial data. The PCE Deflator is seen at 4.7% y/y for August, up from 4.6% prior.

The Citi Economic Surprise Index has been trending higher since June, indicating that economists seem to be underpricing the health and vigor of the country. As such, an upward surprise may boost the US dollar and bond yields, weighing against gold.

Gold technical analysis

Gold is struggling to push further above the 78.6% Fibonacci extension at 1651 after closing above it earlier this week. This means prices remain under the 20-day Simple Moving Average which stands as immediate resistance. It could reinstate the downward focus. If not, the long-term falling trendline from March would be in focus next. Clearing the 100% level at 1609 exposes the 123.6% point at 1562.64.

XAU/USD daily chart

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