Gold Price Rebounds to $2,385: Fed Rate Cut Speculation Fuels Rally

Gold prices staged a modest comeback, rising 0.80% to $2,385 after initially plummeting to a two-week low of $2,353. This recovery was largely fueled by market speculation that the Federal Reserve might reduce interest rates in their upcoming September meeting.

This anticipation follows a soft inflation report, suggesting a cooling economic environment conducive to rate cuts.

The latest data from the US Bureau of Economic Analysis (BEA) highlighted that the Personal Consumption Expenditure Price Index (PCE), the Fed’s preferred inflation measure, inched up marginally over the previous month and closely approached the Federal Reserve’s target of 2%.

Despite a monthly increase, the year-over-year data met expectations, reinforcing the case for a potential easing of monetary policy.

Implications of Economic Indicators on Financial Markets

The soft inflation figures led to a rally in U.S. bonds, resulting in a decline in Treasury yields, particularly with the 10-year note dropping to 4.202%.

This shift underscores a broader market sentiment that inflation pressures and economic activity are diminishing, thereby providing room for the Fed to implement rate cuts.

According to sources from Reuters, the weakening U.S. data aligns with the market’s expectation of a dual-rate reduction before year-end. The Federal Reserve’s forthcoming monetary policy decision is highly anticipated next week.

While the rates are expected to remain unchanged, the meeting will likely set the stage for a rate cut in September, as signalled by the recent economic indicators.

Recent Inflation and Consumer Sentiment Trends

The PCE for June reported a modest 0.1% monthly increase and a 2.5% annual rise—figures that align with analysts’ predictions. Notably, the Core PCE, which excludes volatile food and energy prices, surpassed estimates by climbing 0.2% month-over-month and 2.6% year-over-year.

The core PCE index rose 0.18% in June, spot on with expectations, holding the 12-month rate at 2.6%

May was revised to +0.13% from +0.08%, which is the most benign possible explanation for the larger than anticipated Q2 figure reported on Thursday. pic.twitter.com/nwOR6bSFZF

— Nick Timiraos (@NickTimiraos) July 26, 2024

Additionally, the University of Michigan’s Consumer Sentiment Index slightly missed expectations, registering at 66.4 against the forecasted 66. Inflation expectations have also adjusted, with a one-year outlook dipping to 2.9%, while the five-year forecast remains stable at 3%.

Trading Outlook and Federal Reserve Expectations

Market traders, as per the Chicago Board of Trade (CBOT), are currently pricing in approximately 55 basis points of easing by the end of 2024, as indicated by the fed funds rate futures for December.

This pricing reflects the broader anticipation of easing monetary policy amid stable yet cautious economic indicators, suggesting a possible beneficial environment for gold as a hedge against potential currency devaluation and inflation uncertainties.

Gold Price Forecast : Technical Outlook

The current price of Gold (XAU/USD) stands at $2,387.02, with a 24-hour trading volume of $2.39 billion. The 4-hour chart reveals key technical levels and indicators that suggest the metal’s future trajectory.

The pivot point is set at $2,387.02, a critical level for determining potential market movements. Immediate resistance is observed at $2,390, with further resistance levels at $2,421 and $2,445. These levels will be crucial for any bullish momentum.

Conversely, immediate support is noted at $2,356, followed by $2,339 and $2,318, which are pivotal for any potential downward movements.

Technical indicators provide further insight into Gold’s market conditions. The Relative Strength Index (RSI) is at 36.77, indicating a bearish sentiment. The 50-day Exponential Moving Average (EMA) is $2,398.67, suggesting a downward trend as the current price is below this level.

The gold price is trading within a downward channel, reinforcing the bearish outlook, with the 50 EMA providing additional resistance around the $2,390 level. In conclusion, the technical outlook for Gold remains bearish below the $2,390 level.

Traders are advised to consider selling below this level, as maintaining below the pivot point could lead to further downward movement towards the support levels of $2,356 and $2,339.