Gold Holding Firm Amid Market Uncertainty
Gold has shown resilience in the current consolidating phase, with hedge funds maintaining their positions since the February-March rally. In May, gold surged to an all-time high, driven by expectations of rate cuts, China’s stimulus measures, and geopolitical tensions. The metal is expected to remain strong as long as it holds above $2,275, with potential to reach $2,600 by year-end, bolstered by multiple supportive factors.
PCE Data and Market Expectations
The U.S. PCE numbers, the Fed’s preferred inflation gauge, are due at 12:30 GMT. A soft PCE reading is crucial to sustain hopes for a Fed rate cut, which would further support gold prices. The market anticipates little to no monthly increase in the headline PCE for May, with the core PCE expected to show its lowest annual rise since March 2021. The Dow Jones forecasts for Friday’s PCE numbers are for a flat headline reading and a 0.1% rise in core PCE, compared to April’s increases of 0.3% and 0.2%, respectively.
Fed Policy and Economic Indicators
Gold rose over 1% in the previous session following a slowdown in U.S. economic activity. However, Fed Governor Michelle Bowman remains cautious, not yet ready to support a rate cut due to persistent inflation pressures. Despite progress in reducing inflation from its mid-2022 peak, core PCE has risen 14% since March 2021. Fed officials, including Governor Lisa Cook, emphasize the ongoing challenge of returning inflation to the 2% target. Futures markets are pricing in a likely quarter-percentage-point rate cut in September, with another possible by year-end, contingent on forthcoming data.
Market Forecast: Bullish Outlook for Gold
Short-term Forecast: In the near term, it is crucial for gold to hold above the $2,275 level to avoid a forced long-liquidation phase. Stability above this threshold will support a positive sentiment and maintain the metal’s strength.
Long-term Forecast: As long as supportive factors persist and the Fed moves towards easing, gold is expected to maintain its upward momentum. By the end of the year, gold could potentially reach $2,600, driven by sustained demand and favorable economic conditions. Traders should closely monitor economic indicators and Fed policy signals to adjust their positions effectively.