Gold (XAU/USD) traded lower on Friday after hitting a multi-month high. Traders shifted their focus to key inflation figures. Gold recently reached $3,423, its highest level since July 23. At present, with the European session underway, it is exchanging hands just below $3,407. The precious metal is still down about 0.30% on the day, somewhat indicative of a currently cautious/troubling sentiment in the marketplace.
The main other source of downward pressure on gold has been a relatively steadier US Dollar (USD) combined with a firmer trend in Treasury yields. As market participants reposition ahead of the Federal Reserve’s preferred inflation gauge, investors are closely monitoring economic indicators that could influence future monetary policy.
Market Dynamics and Influences
Gold’s recent price action underscores the challenging and complicated economic backdrop we face today. The metal has already suffered a sizable correction after a strong surge. It rallied all the way up to $3,423, marking the highest point in over two months. As of Friday, gold is still in a holding pattern just above the key $3,400 level, which should act as near-term support.
With the ongoing strength of the US Dollar, this is added pressure on the price of gold. With higher interest rates, a stronger dollar will make gold more expensive for investors using other currencies, which reduces demand. Complementing this, accelerating Treasury yields have started the bearish rush in gold prices as well. All else being equal, higher yields raise the opportunity cost of holding non-yielding assets such as gold.
Market analysts note that gold is navigating through a challenging landscape as traders await the release of the core Personal Consumption Expenditures (PCE) Price Index later in the day at 12:30 GMT. This is an index that even the most sophisticated investors and policymakers watch closely. It’s an important leading indicator of overall consumer inflation.
Support Levels and Future Outlook
With gold prices trading just above $3,407, market analysts are closely watching for signs of support. Technically, the $3,400 level is of extreme importance for gold. Currently, analysts are finding more downside cushions at the 21-period Exponential Moving Average (EMA) near $3,395 and the 100-period EMA at $3,365. These Roof at every level are essential. They will decide whether gold is able to hold onto its recent gains, or if a bigger correction is in front of us.
Even with this current pullback, gold is still set up for some strong monthly advances. This resilience belies deeper and more persistent uncertainties in global markets as investors continue to search for safe-haven assets in increasingly volatile markets.
Investors are especially sensitive to any hawkish (inflation-fighting) signals from Fed Governors which could stifle economic growth. “That view, of course, could change if the employment report for August points to a substantially weakening economy and inflation remains well contained,” noted Fed Governor Christopher Waller. These kinds of remarks be hugely impactful to the overall sentiment of the market—and thus gold’s price.
Implications for Investors
So the next PCE data will be dynamically influential in framing market expectations. Beyond that, it’ll dictate the course of gold over the next few days. If today’s report indicates inflation is stronger than expected, it will further bolster the case for moving more quickly to tighten monetary policy. This would lend further downward pressure on gold prices.
A softer inflation print can provide some short-lived support for gold. It could be a sign that the Federal Reserve is turning more dovish. Investors are considering all of these options as they chart their course through this uncertain new normal.