Gold price moves higher with eyes on US core PCE inflation

• Gold price jumps to $2,350 as US Dollar drops after weak US Q1 GDP growth data.

• Investors look for US core PCE inflation data for more cues about the Fed’s rate cut timing.

• Market expectations for the Fed delaying rate cuts remain firm.

Gold price (XAU/USD) rises to $2,350 in Friday’s European session, showing strength ahead of the United States core Personal Consumption Expenditure Price Index (PCE) data for March, which will be published at 12:30 GMT.

US core PCE inflation is estimated to steady at 0.3% on month. The annual underlying inflation data is forecasted to have softened to 2.6% from 2.8% in February. Higher-than-expected figures would weaken Gold’s appeal as they would increase the opportunity cost of investing in it. On the contrary, signs of easing price pressures would provide some further support to the Gold price as they could increase expectations of early cuts from the Federal Reserve (Fed).

The US Dollar trades slightly up on Friday, but it fell on Thursday after weak US Q1 GDP growth raised doubts over the economy’s ability to maintain its strength in upcoming quarters. The US Dollar Index (DXY), which tracks the US Dollar’s value against six major currencies, hovers around 105.60.

Meanwhile, 10-year US bond yields are slightly down at 4.69% but are still close to a five-month high. Yields remain firm as investors see the Fed delaying rate cuts to later this year as progress in inflation declining to the 2% target seems to have stalled. 

Daily digest market movers: Gold price likely set for bearish weekly close

Gold price moves higher to the crucial resistance of $2,350. The precious metal got some relief from a weakening US Dollar, which suffered from a weaker-than-expected US economic growth rate for Q1. The US economy grew at an annualized pace of 1.6%, lower than the consensus of 2.5% and the former reading of 3.4%. This has raised concerns over the US economic outlook.

Generally, a sharp decline in GDP growth could be the consequence of one or more factors such as weak household spending, limited monetary stimulus or less government spending. In theory, weaker-than-expected GDP growth should have boosted expectations for the Federal Reserve (Fed) to roll back its restrictive monetary policy stance, which it is maintaining since the strong stimulus due to the Covid-19 pandemic prompted inflationary pressures to historic levels.

However, traders continued to pare back Fed rate cut bets due to stubbornly higher GDP Price Index data, which is a lagging inflation indicator. The inflation measure rose to 3.1% from the prior reading of 1.7%. The CME Fedwatch tool shows there is a 59% chance of a rate cut in September, down from the 69% recorded a week ago.

Meanwhile, investors shift focus to the US core PCE Price Index data for March, which could provide more cues about when the Fed could start reducing interest rates. The underlying inflation data will also influence the Fed’s interest rate outlook ahead of the monetary policy meeting on May 1, in which the US central bank is widely anticipated to keep interest rates unchanged in the range of 5.25%-5.50%.

Technical Analysis: Gold price jumps to $2,350

Gold price rebounds after discovering buying interest near the 20-day Exponential Moving Average (EMA), which trades around $2,315. The near-to-long-term appeal remains strong as Exponential Moving Averages (EMAs) for short to longer terms are sloping higher.

On the downside, a three-week low near $2,265 and March 21 high at $2,223 will be major support zones for the Gold price.

The 14-period Relative Strength Index (RSI) falls below 60.00, suggesting that bullish momentum has come to an end at least for now. However, the long-term upside bias is intact as long as the RSI sustains above 40.00.