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Gold Price Outlook Hinges on US Inflation During Fed Blackout Period

Gold Price Outlook Hinges on US Inflation During Fed Blackout Period

David Song, Strategist

Gold Price Talking Points

The price of gold slipped below the 50-Day SMA ($1938) for the first time since February as it extends the decline from the monthly high ($1998), and the update to the US Personal Consumption Expenditure (PCE) Price Index may drag on bullion as the Federal Reserve’s preferred gauge for inflation is expected to downtick for the first time since August.

Fundamental Forecast for Gold Price: Neutral

The price of gold appears to be on track to test the monthly low ($1918) as Federal Open Market Committee (FOMC) Chairman Jerome Powellinsists that a 50bp rate hike “will be on the table for the May meeting,” and expectations for a further shift in US monetary policy may keep the precious metal under pressure as the “Committee expects to begin reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities at a coming meeting.

Gold Price Outlook Hinges on US Inflation During Fed Blackout Period

Source: CME

As a result, the CME FedWatch Tool now reflects a 100% probability for at least a 50bp rate hike on May 4, and the price of gold may face headwinds during the Fed’s blackout period as the central bank plans to normalize monetary policy in order to tame inflation.

Gold Price Outlook Hinges on US Inflation During Fed Blackout Period

In turn, the update to the US PCE may influence the precious metal over the coming days as the core reading is expected to narrow to 5.3% from 5.4% per annum in February, and indications of slowing price growth may drag on bullion as it encourages market participants to no longer hedge against inflation.

With that said, failure to hold above the 50-Day SMA ($1938) raises the scope for a further decline in the price of gold as it appears to be on track to test the monthly low ($1918), and developments coming out of the US may keep the precious metal under pressure as the FOMC shows a greater willingness to normalize monetary policy at a faster pace.

--- Written by David Song, Currency Strategist

Follow me on Twitter at @DavidJSong

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

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