Gold price outlook (XAU/USD) traded mixed on Friday, slipping to the $2,510s after the release of the US Personal Consumption Expenditure (PCE) Index for July. This inflation data slightly missed expectations, showing prices rising less than forecasted, which added some complexity to the precious metal’s performance.
The market was somewhat subdued, as the lower-than-expected inflation numbers did not provide the usual support for gold. Typically, lower inflation hints at potential interest rate cuts, which would generally make gold more attractive as a non-interest-bearing asset. However, this was not the case here, reflecting the complexity of current market dynamics.
Mixed US PCE Data Impacts Gold Price
The US Core PCE data for July indicated a 2.6% annual price increase, slightly below the 2.7% forecast, matching the previous month’s rise. On a monthly basis, prices increased by 0.2%, consistent with estimates and slightly up from June’s 0.1% increase, according to the US Bureau of Economic Analysis. Meanwhile, the headline PCE rose by 2.5%, again missing the 2.6% forecast but mirroring June’s reading.
In normal circumstances, such a result would likely support gold prices. Lower-than-expected inflation can reduce the likelihood of interest rate hikes, enhancing gold’s appeal. However, Friday’s data did not follow this expected pattern.
Gold Faces Key Resistance
After the US inflation data PCE data release, gold hovered just below a critical resistance level at $2,531, close to the August all-time high. Earlier in the week, revised Gross Domestic Product (GDP) data showed stronger-than-expected growth, further reducing recession concerns in the US economy. This data implies that the Federal Reserve may take a more cautious approach in cutting interest rates, with markets still expecting around 1.00% of cuts by the year’s end. Lower interest rates generally support gold prices, as they reduce the opportunity cost of holding the asset.
China’s Influence on Gold Price Outlook
China’s gold price outlook may play a significant role in shaping the future of gold prices. Data from the World Gold Council revealed a 17% increase in Chinese gold imports in July, marking the first rise since March. Additionally, North American funds showed an 8-metric-ton increase in net inflows last week, worth around $403 million.
Long-term, China’s gold demand looks promising. Economic slowdowns could make gold a more attractive safe-haven asset for both investors and the People’s Bank of China (PBoC), which may further increase its gold reserves. Currently, these reserves are low compared to other nations. Efforts by the BRICS to move away from the US dollar, potentially using gold as an alternative, could also boost demand. However, research by Capital Economics suggests that China’s gold demand might weaken in the short term due to cyclical factors.
Upcoming Economic Data and Gold’s Outlook
Investors are now anticipating the release of the Federal Reserve’s preferred inflation measure, the PCE Price Index. The core PCE inflation gauge is expected to rise slightly to 2.7% in July from June’s 2.6%. Any divergence from this estimate could significantly impact gold prices, with higher inflation potentially weakening gold by signaling that the Fed might keep interest rates higher for longer.
In the short term, there are risks to gold prices due to extreme long positioning in the derivatives market. According to Daniel Ghali, Senior Commodity Strategist at TD Securities, the long trade is now overcrowded, which could pose downside risks.
On Thursday, TD Securities initiated a tactical short position in gold, entering at $2,533 with a target of $2,300 and a stop loss at $2,675.
Technical Analysis: Bullish Trend Despite Range Trading
Gold remains within a mini-range above its prior trading levels, reflecting a sideways short-term trend. Despite this, the medium and long-term trends for gold remain bullish, with the possibility of a breakout to higher levels.
A key resistance level lies at $2,531, and breaking this could lead to a rise towards $2,550. However, a drop below $2,470 might signal a short-term downtrend.
Conclusion
Gold’s performance remains mixed as it contends with various market forces, including US inflation data and global economic factors like China’s gold demand. As investors watch for upcoming data, the precious metal’s outlook remains cautiously optimistic.
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