Gold price falls on Friday, but weekly gains exceed 1%

XAU/USD falls to $2,646 after September inflation data suggested progress toward the Fed’s 2% target.
The US 10-year Treasury yield is down five basis points, while the US dollar index is down 0.16% to 100.41.
Geopolitical risks augment as Israel attacks Lebanon, but gold fails to gain momentum as investors take profits.

Gold fell to a three-day low below $2,650 after the U.S. Bureau of Economic Analysis (BEA) revealed that September inflation continues to move toward the Federal Reserve’s (Fed) target. While this justified further easing of monetary policy by the Fed, the gold metal failed to gain traction as analysts speculated that investors were booking profits. The XAU/USD rate is $2,657, down almost 0.50%.

Previously, the BEA revealed that the Fed’s preferred measure of inflation, the Consumer Expenditure Price Index (PCE), is slightly closer to the central bank’s 2% target as of August data. Meanwhile, core PCE increased by one-tenth of a percentage point compared to July data.

Following the data, the 10-year US Treasury yield fell five basis points to 3.749%. As a result, the dollar fell and the US Dollar Index (DXY) fell 0.16% to 100.41.

After these data, according to the CME FedWatch Tool, the probability of easing monetary policy by 50 basis points (bps) at the November meeting increased.

Given the market reaction, it was expected that gold prices could set another record. Nevertheless, the XAU/USD pair fell below the September 26 intraday low of $2,654, opening the door to a deeper pullback.

Other data showed improvement in University of Michigan’s final consumer sentiment reading for September.

Moreover, there is a risk of escalation of the conflict in the Middle East between Israel and Hezbollah. Israel claimed it struck Hezbollah’s headquarters in southern Beirut on Friday. An Israeli official said the government hopes not to continue a land invasion of Lebanon, but has not ruled out such an invasion.

Reuters revealed that gold ETFs recorded modest net inflows last week and have not yet fully contributed to the gold price rally, although analysts expect more activity from ETFs in the coming months.

Daily Market Change Summary: Gold price falls as U.S. inflation approaches 2% target.

August PCE in the US was 2.2% y/y, compared to 2.5% a month earlier and slightly below the consensus.
Core PCE increased slightly, as expected, from 2.6% to 2.7% y/y over the same period.
University of Michigan (UoM) consumer sentiment improved from 69.0 to 70.1 for September. One-year inflation expectations fell from 2.8% to 2.7%, while five-year expectations rose from 3% to 3.1%.
Market participants have fully priced in a Fed rate cut of at least 25 basis points. However, according to the CME FedWatch Tool, the probability of a 50 basis point cut has dropped to 54.7%, down from 60% two days ago.

XAU/USD technical analysis: gold price is falling and oscillating around $2,650

The gold price has reached an all-time high of $2,685 and remains on an upward trend. However, buyers failed to reach modern record highs, opening the door to pullbacks. Short-term momentum favors sellers as the Relative Strength Index (RSI) leaves the overbought area and heads towards 60 points.

If XAU/USD falls below $2,650, look for a test of the September 18 intraday high at $2,600. The next key support levels to test will be the September 18 low at $2,546, followed by the 50-day basic moving average (SMA) at $2,488.

Conversely, if XAU/USD extends its rally beyond the current year-to-date high of $2,685, the next resistance will be $2,700. The next level will be $2,750 and then $2,800.