Gold slips as sticky US PCE inflation fails to boost Fed rate-hike expectations

Gold (XAU/USD) trades around $4,620 on Wednesday at the time of writing, down 0.83% on the day. Bearish pressure on the precious metal strengthens modestly following the release of the Federal Reserve’s (Fed) preferred inflation gauge, although the data do little to alter market expectations for the central bank’s September meeting.

The Bureau of Economic Analysis (BEA) reports that the Personal Consumption Expenditures (PCE) Price Index rises 3.7% YoY in July, unchanged from June but slightly above the 3.6% expected by markets. The core PCE Price Index, which excludes volatile food and energy prices, remains steady at 3.3% YoY in July, matching market expectations. On a monthly basis, the PCE Price Index and the core PCE Price Index both rose by 0.2%. 

The slightly stronger-than-expected headline reading initially adds some downward pressure on Gold, as persistent inflation could support the case for keeping US interest rates elevated. However, the report does not appear strong enough to significantly reshape expectations for Federal Reserve monetary policy.

According to the CME FedWatch Tool, markets continue to price in around a 36% chance of an interest-rate hike at the Fed’s September meeting, leaving roughly a 64% chance that borrowing costs will remain unchanged. These probabilities are broadly similar to those seen before the PCE release.

The limited reaction in rate expectations suggests that investors view the report as broadly consistent with the existing monetary policy outlook. While headline PCE inflation proves slightly more persistent than anticipated, the core measure, which is closely monitored for underlying inflation trends, comes exactly in line with expectations.

Geopolitical developments also remain in focus. Iranian Deputy Foreign Minister Kazem Gharibabadi said that the temporary transit agreement with Oman does not mean that the Strait of Hormuz has reopened, adding that the waterway will remain closed until the United States (US) fulfills its commitments under the Memorandum of Understanding (MoU).

Market attention will now turn to Fed Chair Kevin Warsh’s speech at the Jackson Hole Economic Policy Symposium on Friday. The event could prove particularly significant for financial markets, as investors will closely scrutinize Warsh’s comments for fresh signals on the Fed’s policy outlook ahead of the September meeting. Any indication that the central bank is leaning toward keeping rates unchanged or considering another hike could trigger volatility in the US Dollar, US Treasury yields and, consequently, Gold.

XAU/USD technical analysis

In the one-hour chart, XAU/USD trades at $4,620.38, holding a constructive short-term bias as it remains above both the 100-period simple moving average (SMA) at $4,606.20 and the 200-period SMA at $4,502.80. This positioning suggests that dips are still being supported by the broader uptrend, even as prices recently broke its ascending trendline. The Relative Strength Index (RSI) near 41.00 hints at waning upside momentum, indicating that bulls may need fresh impetus to challenge overhead barriers decisively.

On the downside, initial support is seen at the horizontal level of $4,607.18, closely backed by the 100-period SMA at $4,606.20, while deeper demand is expected near the 200-period SMA at $4,502.80. On the topside, immediate resistance is located around the horizontal resistance of $4,697.00; a sustained break above these levels would open the way for a stronger bullish continuation in the near term.