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Gold Soars As U.S. Dollar Retreats, Focus Shifts To Core PCE Inflation

By Sagar Dua, FXStreet

  • Gold price jumps higher as expectations that the Fed will cut interest rates in June remain firm.

  • The Fed appears to be confident that inflation is easing toward the 2% target.

  • Investors await the US core PCE inflation for fresh guidance.

Gold price (XAU/USD) soars to $2,200 in Wednesday’s European session amid multiple tailwinds. The main driver is that expectations for the Federal Reserve (Fed) reducing interest rates from the June meeting remain firm. These expectations, which also price in two more cuts by the end of the year, have strengthened the appeal of Gold. 

On Monday, Chicago Fed Bank President Austan Goolsbee cautioned that the inflation outlook is uncertain due to higher housing inflation. However, he remained confident that the fundamental story of inflation returning to the 2% target has not changed.

Firm market expectations for the Fed cutting rates in June have supported Gold prices as it lower the opportunity cost of investing in it. Meanwhile, 10-year US Treasury yields are slightly up at 4.24% but remain inside Tuesday’s trading range as investors await the crucial United States core Personal Consumption Expenditure (PCE) price index for February, which will be published on Friday. The underlying inflation data will significantly influence Gold prices as it will provide some clues over the time frame in which the Fed intends to start cutting interest rates.

The US Dollar Index (DXY), which measures Greenback’s value against six major currencies, retreats slightly from 104.40.

Daily digest market movers: Gold price advances while US Dollar falls back

  • Gold price rises to $2,190, aiming to recapture all-time highs of $2,223. Investors remain gung-ho for Gold as expectations for the Federal Reserve to begin rate cuts from the June policy meeting have strengthened.

  • The CME FedWatch tool shows that there is almost a 70% chance that a rate-cut cycle will get started in June. Last week, bets for the Fed lowering key borrowing rates from June were dashed by hot consumer price inflation readings. However, the release of the latest dot plot – which pointed out that officials still expect  three rate cuts in 2024 – has renewed hopes of upcoming rate cuts.

  • The Fed is confident that the underlying story of inflation easing to 2% has not changed despite back-to-back stubborn Consumer Price Index (CPI) data in the first two months of 2024. However, the Fed didn’t offer any cues about when it could start cutting rates.

  • This week, the release of the United States core PCE price index data for February will provide fresh cues about Fed rate cut timing. Uncertainty over the timing of rate cuts could deepen if the inflation data turns out hotter than expected.

  • Core PCE is estimated to have grown steadily by 2.8%, with monthly growth declining to 0.3% from 0.4% in January. A stubborn inflation data would dampen the Gold’s appeal as hot inflation figures could delay the Federal Reserve’s plans to reduce interest rates. On the contrary, soft inflation figures could hit the US Dollar and  US bond yields, supporting demand for Gold. 

  • But before that, investors will focus on the speech from Fed Governor Christopher Waller, who will speak at 22:00 GMT about the US economic outlook before the  Economic Club of New York. Investors will keenly focus on fresh guidance on interest rates.

Technical Analysis: Gold climbs above $2,190

Gold price jumps above $2,190 amid multiple tailwinds. The precious metal is aiming to recapture the all-time highs slightly above $2,220. The near-term demand is upbeat as all short-to-long term Exponential Moving Averages (EMAs) are sloping higher. 

The Gold price could face a hurdle near $2,250, which coincides with the 161.8% Fibonacci extension level, after breaking above the resistance of $2,220. The Fibonacci tool is plotted from December 4 high at $2,144.48 to December 13 low at $1,973.13. On the downside, December 4 high at $2,144.48 will support the Gold price bulls.

The 14-period Relative Strength Index (RSI) rebounds after cooling down to 64.00 from an extremely overbought zone.



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