Gold sticks to strong intraday gains, focus remains glued to the US PCE Price Index

Gold price gains strong positive traction and snaps a four-day losing streak to a near seven-month low.
Retreating US bond yields drags the USD away from a 10-month high and lends support to the metal.
Bets for one more Fed rate hike in 2023 might cap gains as traders await the US Core PCE Price Index.

Gold price (XAU/USD) has been trending lower since the beginning of the current week and dropped to its lowest level since March 10, around the $1,858-1,857 region on Thursday. That said, declining US Treasury bond yields drags the US Dollar (USD) lower for the second straight day, away from the YTD peak touched on Wednesday, and assists the commodity to gain some positive traction on Friday and snap a four-day losing streak. The USD downfall could further be attributed to some repositioning trade ahead of the US PCE Price Index.

The core measure, which is the Fed's preferred inflation gauge, will influence expectations about the next policy move, which, in turn, will drive USD and provide a fresh directional impetus to the non-yielding Gold price. In the meantime, a looming shutdown of the US government on October 1, which poses a risk to the economy, along with persistent worries over China's ailing property sector, lends additional support to the safe-haven yellow metal.

It, however, remains to be seen if the intraday positive move in the Gold price is backed by genuine buying or turns out to be a short-covering bounce in the wake of growing acceptance that the Federal Reserve (Fed) will stick to its hawkish stance. The US central bank warned last week it could potentially hike rates once more in 2023 in the wake of still-sticky US inflation. Hence, a stronger inflation reading, along with the US economic resilience, will reaffirm hawkish Fed expectations and prompt aggressive selling around the commodity.

Daily Digest Market Movers: Gold price recovers from multi-month low amid some repositioning ahead of the US PCE

The 10-year US Treasury bond yields retreated from a 16-year peak and drags the US Dollar away from the YTD top.
A deadlock over demands from Republicans for deep public spending cuts poses the risk of a US government shutdown.
House Republicans have rejected spending levels for fiscal year 2024 set in a deal between Speaker Kevin McCarthy and President Joe Biden in May 2023.
The Democratic-led US Senate moved forward with a bipartisan stopgap funding bill to extend federal spending until November 17.
Growing concerns over slowing Chinese growth and a property market crash continue to weigh on investors' sentiment.
The US economy grew by a 2.1% annualized pace during the second quarter and reaffirms bets for at least one more Fed rate hike by the year-end.
Richmond Fed President Thomas Barkin said on Thursday that it was unclear whether more monetary policy changes will be needed in the coming months.
The market focus remains glued to the crucial US PCE Price Index, which will influence expectations about the Fed's future rate-hike path.
The Core PCE Price Index is expected to hold steady and rise by 0.2% MoM in August. The yearly rate, however, is projected to decelerate from 4.2% to 3.9% during the reported month.

Technical Analysis: Gold price could find it difficult to move back above $1,900

From a technical perspective, the Relative Strength Index (RSI) on the daily chart is flashing oversold conditions and prompts traders to lighten their bearish bets around the Gold price heading into the key data risk. That said, it will still be prudent to wait for some follow-through buying beyond the overnight swing high, around the $1,880 region, before positioning for any further gains. The XAU/USD might then accelerate the momentum and aim to reclaim the $1,900 mark. The said handle should act as a strong barrier, which if cleared will suggest that the downtrend witnessed over the past week or so has run its course.

On the flip side, the $1,864 region might now protect the immediate downside ahead of the multi-month trough, around the $1,858-$1,857 zone touched on Thursday. Failure to defend the said support will be seen as a fresh trigger for bearish traders. The Gold price might then turn vulnerable to accelerate the slide towards the next relevant support near the $1,820 zone. The downward trajectory could get extended further towards the $1,800 round-figure mark.

Fed FAQs

What does the Federal Reserve do, how does it impact the US Dollar?

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.

How often does the Fed hold monetary policy meetings?

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.

What is Quantitative Easing (QE) and how does it impact USD?

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.

What is Quantitative Tightening (QT) and how does it impact 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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