Gold Price Forecast: PCE Data Weakens Fed Rate Hike Expectations, Can Gold Price Hold Steady at $4,000?

TradingKey - As of today's Asian session (June 26), gold ( XAUUSD) prices fluctuated near $4,010. Yesterday, gold rebounded following the release of the PCE data, and market sentiment improved significantly compared to before the release. However, from an overall structural perspective, gold has not yet fully broken out of its weak pattern. Although the PCE data did not deteriorate further beyond expectations, triggering short-term short-covering, U.S. inflation remains significantly above the Federal Reserve's 2% target. With expectations for future Fed rate hikes persisting, the upside potential for a gold rebound remains limited.

PCE data dampens expectations of more aggressive Fed rate hikes, but sticky inflation limits room for a gold price rebound.

From a fundamental perspective, the core reason supporting the rebound in gold lies in the U.S. May PCE data released yesterday. The data showed that the U.S. May PCE rose to 4.1% year-on-year, breaking above 4% for the first time in three years, while the core PCE rose to 3.4% year-on-year, indicating that U.S. inflationary pressures remain strong. Since the headline PCE rose 0.4% month-on-month, below the 0.5% previously expected by some economists, and the core PCE of 0.3% month-on-month was also basically in line with expectations, the market did not further bet on more aggressive rate hikes by the Federal Reserve after the data release.

Prior to the data release, the market had already priced in the logic of a hotter PCE, Fed rate hikes within the year, and a stronger U.S. dollar. Gold prices had previously fallen for several consecutive days and temporarily dipped below the $4,000 mark before the PCE data release, indicating that short positions were already relatively crowded. When the PCE data did not turn out hotter than the market had feared, some short sellers chose to take profits, while bulls attempted to buy the dip near $4,000, driving a technical rebound in gold prices.

At the same time, the pullback in the U.S. dollar and Treasury yields after the PCE release also provided short-term support for gold. After the PCE data materialized yesterday, market concerns over an immediate and more aggressive rate hike by the Fed eased. The U.S. dollar's rally temporarily slowed, and Treasury yields retraced, driving gold to rebound from its lows.

However, the gold rebound does not mean the trend has reversed. The May PCE at 4.1% YoY and core PCE at 3.4% YoY are still significantly above the Fed's 2% inflation target. In particular, service prices and core inflation remain sticky, indicating that U.S. inflationary pressures have not truly been resolved. Against this backdrop, it is difficult for the Fed to quickly pivot to easing, and the market still expects the possibility of rate hikes within the year. As long as rate hike expectations do not cool down significantly, the U.S. dollar and Treasury yields may continue to fluctuate at high levels, exerting persistent pressure on gold.

Gold Price Technical Analysis: Rebound Likelihood Increases, but Overall Trend Remains Bearish

Gold price daily chart, Source: TradingView

Looking at the daily chart, gold prices fluctuated and rebounded around $4,000 yesterday, but the closing price successfully held above the $4,000 mark. This indicates that dip-buyers are continuing to step in, supporting a rebound in gold prices.

At present, $4,000 serves as a key battleground for bulls and bears. If gold's closing price today can continue to hold above this level, the likelihood of a short-term rebound will increase significantly, potentially testing the resistance near $4,070. A further breakout could open up upside space toward $4,140, with the next key resistance at $4,360.

Conversely, if today's closing price falls below $4,000, gold prices may extend their downward trend to test the support level at $3,900. If this level is breached, it will open up downside room toward $3,500.