Gold surges as core PCE confirms disinflation and boosts precious metals

• Gold price climbs over 0.50%, reaching $2,046, as Core PCE report supports continued disinflation trend.
• US Treasury yields fall, enhancing Gold's appeal, with market adjusting rate cut expectations for June.
• Economic indicators including Initial Jobless Claims and home sales data further shape monetary policy outlook.

Gold price rose more than 0.50% in Thursday’s North American session after the release of the Federal Reserve’s preferred gauge of inflation, the Core Personal Consumption Expenditure (PCE) Price Index, was aligned with estimates. The data confirmed the disinflationary process continues, triggering a drop in US Treasury bond yields, which correlate inversely to precious metals prices. Consequently, the price of the yellow metal surged, and the XAU/USD traded at $2,046.

The most awaited report for the week was finally released as the US Bureau of Economic Analysis revealed the Core PCE report. Annual figures came in as expected with inflation decelerating from December’s 2.9% to 2.8% YoY in January. Headline inflation cooled down sharply from 2.6% to 2.4% YoY in January, aligned with the consensus. The data sponsored a leg up in Gold prices after US Treasury bond yields plunged on expectations that rate cuts could arrive sooner than expected.

Following the data, interest rate probabilities measured by the CME FedWatch Tool suggest traders are expecting the first cut in June with odds increasing from 39% a day ago to 50.9% at the time of writing.

Further data revealed during the day witnessed the release of Initial Jobless Claims, Pending Home Sales and the Chicago Purchasing Managers Index (PMI) for February.

Daily digest market movers: Gold price climbs sharply as US yields drop on US data

• Data-wise, the US economic docket featured Initial Jobless Claims in the US for the week ending February 24 of 215K, exceeding estimates of 210K and the previous reading of 202K.
• Housing data from the US was revealed by the National Association of Realtors, Pending Home Sales dropped from 5.7% MoM in January to -4.9%.
• Chicago PMI in February came at 44.0, below the consensus of 48.0 and the previous reading of 46.
• A slew of Federal Reserve speakers have crossed the wires.
• San Francisco Fed President Mary Daly said the Fed’s policy is in a good place and the bank is ready to cut rates when the data demands it.
• Atlanta Fed President Raphael Bostic commented that economic data should guide the Fed on when to start rate cuts, which, according to him, could happen in the summer. Bostic acknowledged that inflation is slowing down, but they have to stay “vigilant and attentive.”
• Chicago Fed President Austan Goolsbee said that policy is restrictive, and the question is, “How long do we want to remain restrictive.”
• On Wednesday, New York Federal Reserve President John Williams said the rate-cut decision will depend on incoming data and stated the central bank has come a long way to bring down inflation to the 2% target, but there is more work to do.
• Boston Fed Bank President Susan Collins sees the Fed’s path returning to 2% as bumpy due to tight labor market conditions and higher inflation readings in January. Collins expects that the Fed will start reducing interest rates later this year.
• On Tuesday, Federal Reserve Governor Michelle Bowman said she’s in no rush to cut rates, given upside risks to inflation that could stall progress or cause a resurgence in price pressure. She added inflation would decline “slowly,” and she will remain “cautious in my approach to considering future changes in the stance of policy.”
• Previous data releases in the week:
  • The Gross Domestic Product (GDP) for the final quarter of 2023 was reported at 3.2% YoY, slightly below the preliminary estimate of 3.3%.
  • US Retail Sales Inventories rose 0.3% MoM in January, below 0.4% in the previous month's data, while Wholesale Inventories declined -0.1% MoM, missing estimates of 0.1%.
  • US Durable Goods Orders dropped -6.1% MoM, more than the -4.5% contraction expected and the -0.3% dip observed in December.
  • The S&P/Case Shiller Home Price Index for December rose 6.1% YoY, outpacing estimates of 6% and November’s 5.4% reading.
  • US New Home Sales rose by 1.5% from 0.651M to 0.661M, less than the 0.68M expected.
• The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, edges up by 0.19% at 104.11 as uncertainty over US economic data has improved the appeal for safe-haven assets.
• The US 10-year Treasury note yield stands at 4.236%, down three basis points (bps).

Technical analysis: Gold stays firm, fluctuating near the 50-day SMA

As I wrote on Wednesday, “Gold is trading sideways as XAU/USD has failed to break above the $2,035 psychological resistance level for the last 12 days.” Nevertheless, XAU/USD prices cleared that level and are testing a downslope resistance trendline drawn from the highs of the year near the $2,040-$2,050 region. A breach of the latter will expose the February 1 high at $2,065.60, ahead of the December 28 high at $2,088.48.

On the flip side, if Gold falls below the February 16 swing low of $2,016.15, XAU/USD would dive toward the October 27 daily high-turned-support at $2,009.42.  Once cleared, that will expose key technical support levels like the 100-day SMA at $2,009.42, followed by the 200-day SMA at $1,968.00.