Shining Bright: Gold’s Trajectory Awaits US PCE Inflation Data and Technical Indicators for Potential Upswing
Gold prices are showing renewed vigor, hovering close to the recent peak achieved at $1,949 on Wednesday. As the US Dollar grapples with the aftermath of lackluster economic figures early on Thursday, investors are proceeding with caution, swayed by China’s economic uncertainties and the forthcoming release of the US Federal Reserve’s (Fed) favored inflation metric, the Personal Consumption Expenditures (PCE) Price Index data, set to be unveiled later during North American trading on Thursday.
The Spotlight Illumines US PCE Inflation Data A series of disheartening economic revelations, including Wednesday’s US Automatic Data Processing (ADP) Employment Change report and the second estimate of the Q2 Gross Domestic Product (GDP), has unexpectedly amplified expectations of the Federal Reserve’s tightening cycle reaching its terminus. The financial markets are now pricing in rate cuts for the coming year, a prospect that could potentially exceed the 100 basis points threshold. This follows a sequence of disappointing US economic data that has surfaced earlier this week.
In a twist of fortune, ADP’s Wednesday report unveiled a subdued addition of 177,000 jobs to the US private sector in August, a stark contrast to the revised tally of 371,000 jobs added in July. Moreover, the growth trajectory of the US Q2 GDP experienced a revision, settling at an annual rate of 2.1% instead of the earlier projected 2.4% from the preliminary assessment. On Tuesday, US JOLTS Job Openings witnessed a decline, plunging to the lowest point in over two years at 8.827 million openings in July. This bleak economic narrative further entailed a sharp fall in US Consumer Confidence, plummeting to 106.1 in August following two consecutive months of growth.
In the face of these underwhelming indicators, the US Dollar’s resilience has been remarkable, standing firm in comparison to its major counterparts. Simultaneously, the US Dollar has languished in proximity to the 103.00 mark, wallowing in a two-week low. This predicament has been exacerbated by the continued dovish bets surrounding the Federal Reserve’s policies, which has translated into a palpable pinch for US Treasury bond yields. The benchmark US 10-year Treasury bond yields are presently in consolidation, hovering near a three-week nadir of 4.08%, as they continue to retreat from the summit of 4.3660 reached sixteen years ago.
The Ongoing Bearish Momentum in the US Dollar and US Treasury Bond Yields Serves as a Tailwind for Gold’s Rebound from First Half Losses The current bearish momentum exhibited by the US Dollar and US Treasury Bond Yields has undeniably provided an impetus for Gold to rebound from the losses sustained in the initial half of the month. Another factor influencing Gold’s trajectory is the resurgent EUR/USD rally, which has exerted pressure on the US Dollar. Germany’s Annual Harmonized Index of Consumer Prices unexpectedly surged to 6.4% in August, surpassing the anticipated 6.2% figure and eclipsing the preceding 6.5% surge. This development has amplified speculations of a forthcoming hike by the European Central Bank in September, thus revitalizing the Euro’s performance against the US Dollar.
As the sun rises on Thursday’s trading session, Gold prices retain their upward momentum. The US Dollar’s lingering frailty has prompted traders to exercise caution, avoiding hasty bets on the currency’s trajectory prior to the impending release of the pivotal US PCE inflation data later in the day. In addition, investors remain vigilant amidst concerns regarding China’s decelerating economic pace. Notably, China’s Manufacturing PMI has contracted for the fifth consecutive month in August, a fact that bears significance as China holds the title of the world’s largest Gold consumer. Consequently, the waning prospects of economic recovery in China could exert downward pressure on Gold prices.
Gold’s trajectory is now on a collision course with the critical 100-Daily Moving Averages (DMA) at $1,955, as bullish buyers exhibit a tenacious streak following the earlier elevation of technical indicators.
The 14-day Relative Strength Index (RSI) is adopting a northward trajectory, edging closer to overbought territory while maintaining a position above the midline. This indicator alludes to the presence of untapped upward potential.
Should Gold successfully breach the 100 DMA barrier at $1,955 and secure a daily closure above it, this would likely trigger a test of the stationary resistance level positioned at $1,970. Beyond this juncture, the doors would swing open towards the coveted $2,000 milestone.
Alternatively, any potential pullback in Gold prices would likely encounter initial support at the preceding day’s low, situated at $1,935.
In the event of a retreat, the 50 DMA resistance-turned-support at $1,931 may emerge as a formidable backing. In the event of further downward momentum, Gold sellers might aim for the robust support around the $1,913 mark, which serves as a convergence point for the 21 and 200 DMAs.