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Gold Prices Rise Ahead of US GDP and PCE Data. Is More XAU Gains Ahead?

Gold Prices Rise Ahead of US GDP and PCE Data. Is More XAU Gains Ahead?

Thomas Westwater, Analyst

Gold, XAU/USD, FOMC, GDP, PCE, Technical Outlook - TALKING POINTS

  • Trimmed FOMC hike bets after rate decision bolster bullion prices
  • US second-quarter GDP growth rate and June PCE main risks to prices
  • XAU/USD breaks above the 23.6% Fib level and 20-day SMA
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Gold prices rose against a softer US Dollar as traders trimmed Federal Reserve rate hike expectations following the FOMC policy announcement. Mr. Powell’s commentary elicited a dovish response in Fed rate hike bets. The Fed’s policy response is seen easing in early 2023, with rate hikes forecasted by next year’s May FOMC meeting.

Despite the 75-basis-point rate hike, market-based inflation expectations rose overnight. The US 2-year breakeven rate, measured by the difference between the 2-year nominal and inflation-indexed yield, rose above 3.18%. Gold is used as an inflation hedge for some investors, which explains the upside reaction in prices. Consumer expectations have also risen, further supporting gold’s inflation hedging narrative. The Federal Reserve Bank of New York’s survey of consumer expectations saw the median one-year-ahead inflation expectation for June rise to 6.8%, up from May’s 6.6%.

The US advance estimate second-quarter GDP growth rate presents an upcoming potential risk for gold prices. Analysts expect Q2 GDP to cross the wires at 0.5% on a quarter-over-quarter basis. A miss may spur some risk aversion, which could boost the US Dollar. That may weigh on the yellow metal. However, a weak print could complicate the Fed’s rate hike path.

Nonetheless, gold’s response to the event may introduce some volatility. Later this week, the June personal consumption expenditures price index (PCE) is due out, with estimates seeing a 4.7% y/y increase. That would be steady from the prior month’s 4.7% y/y print. Gold’s reaction would depend on how markets price in that data after traders priced in an easier Fed rate hike path.

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Gold Technical Outlook

Gold’s technical posture improved, crossing above its 20-day Simple Moving Average following a break above the 23.6% Fibonacci retracement level. Meanwhile, the MACD and RSI oscillators are on track to cross above their midpoints, a bullish sign. Bulls may attempt to push prices above the 38.2% Fib at 1756.81 in the coming days. A pullback to the 23.6% Fib is also on the cards, which would be bullish if prices hold above the level.

XAU/USD Daily Chart

xau-usd

Chart created with TradingView

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--- Written by Thomas Westwater, Analyst for DailyFX.com

To contact Thomas, use the comments section below or @FxWestwater on Twitter

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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