Gold reflects gains from US PCE inflation data

• Gold reflects gains made after the release of personal consumption expenditures inflation data that showed price pressures subsided in April.
• The precious metal actually made gains after the second estimate of first-quarter GDP in the US showed that the economy expanded less than previously expected.
• Gold remains technically weak after the breakout from the ongoing bearish flag pattern.

Gold (XAU/USD) fell back to the $2,330 area on Friday, reversing post-crisis gains. launch From US personal consumption spending data for April, which showed underlying price pressures easing. The PCE index is the Federal Reserve’s (Fed) preferred measure of inflation, and the core PCE index cooled to 0.2% on the month, from 0.3% previously, according to data from the Bureau of Economic Analysis. Analysts had expected the core personal consumption expenditures index to remain unchanged at 0.3%.

The rest of the PCE data was in line with analysts’ estimates, but the decline in core PCE revealed that US inflation was slowing more quickly than analysts expected. As a result, the likelihood of this happening increases Nourish it Lower interest rates sooner rather than later. Low interest rates tend to be positive for gold because they reduce the opportunity cost of holding non-yielding assets and the precious metal rose after the data.

The gains came on the back of a recovery that began on Thursday after weaker US growth data was released, suggesting inflation will remain under control, also leading to lower interest rate expectations.

As traders wind down for the weekend, gold is falling again and may end the day on a negative note.

Gold recovers after growth slows in the United States

Gold rebounded on Thursday after the second estimate of US GDP growth in the first quarter showed a downward revision to 1.3% year over year from 1.6% in the first estimate.

The slowdown in growth was due to a decline in consumer spending, which in turn is expected to keep inflation under control, and the Federal Reserve is on track to lower interest rates. In a reflection of changing expectations after the GDP release, the yield on the 10-year US Treasury note fell to 4.55% from a four-week high of 4.63%.

Data from CME’s FedWatch tool shows that the odds of the Fed cutting interest rates before September are slim but stand at 55% for a cut in September.

Gold and Asian demand as a currency hedge

US interest rate expectations are not the only factor influencing the price of gold, according to Daniel Ghaly, chief commodities strategist at TD Securities.

Ghali’s research shows that demand for gold is driven by Asian buyers who are hoarding the precious metal as a hedge as the value of their currencies declines against the strength of the US dollar (USD).

“Precious metals act as a hedge against currency depreciation. Case in point: Fund flows into Chinese gold ETFs are rising again at their fastest pace since the massive buying activity observed in April. US yields are rising, and the dollar is out,” Ghaly says. “From a period of stagnation, precious metals prices have nevertheless remained very resilient.”

This suggests that the strength of the US dollar may not be as negatively correlated with gold as it was in the past, and a ceiling could be set for gold prices if the US dollar strengthens.

Technical Analysis: Gold is preparing for weakness after the breakout from the Bear Flag

Gold price has broken out of the diagonal rectangular pattern (red shaded area), likely a bear flag continuation price pattern formed between May 24 and 27.

The breakout activates the bear flag bear flag target zone between $2,303 and $2,295. A break below Thursday’s lows at $2,322 would provide further bearish confirmation.

XAU/USD 4-hour chart

Bear flags look like upside down flags consisting of a steep drop – the flagpole – and a merging stage or “flag square”.

A bearish move could take gold to $2272-$2277 (100% extrapolation of the move before the trend line and historical support and resistance was broken).

The four-hour chart for gold, which is used to evaluate the short-term trend, is now showing a series of falling highs and lows, indicating that it is in a short-term downtrend and favors short positions over long positions.

However, the precious metal’s medium- and long-term trends remain bullish, indicating that the risk of recovery remains high. However, the price action does not support the resumption hypothesis at the moment.

A decisive break above the trend line, which now sits at around $2,385, will be required to provide evidence of a recovery and reversal of the downtrend in the short term.

A decisive breakout will be accompanied by a long green bullish candle or three consecutive green bullish candles.