Gold falls as speculation about Fed rate cut grows after US PCE data

Gold is falling from intraday highs under pressure from elevated U.S. Treasury yields.
The May PCE index in the US, in line with forecasts, gives hope for Fed interest rate cuts in 2024.
The yield on 10-year US bonds reached 4.339%, the highest level since June 12; DXY at 105.80, down 0.08%.

Gold prices fell in Friday’s session after an inflation report revealed progress in the disinflation process and raised hopes that the Federal Reserve (Fed) will cut interest rates in 2024. Although the golden metal rose to a four-day high of $2,339, it fell slightly, with XAU/USD trading at $2,324, down 0.12%.

Bullion prices wobbled following the release of the U.S. Personal Consumption Price Index (PCE) report for May, which was in line with estimates and painted an confident outlook for U.S. consumers hit by higher prices.

Initially, the XAU/USD pair climbed to a four-day high, but as traders digested the data, US Treasury yields rose and gold fell.

The yield on the 10-year U.S. Treasury note rose five and a half basis points to 4.339%, its highest level since June 12. Despite this, the dollar did not follow suit but recovered after hitting intraday lows, with the US Dollar Index (DXY) hovering around 105.80, down 0.08%.

Other data showed U.S. consumer sentiment improved slightly from a preliminary reading in June, which was worse than the May report.

Some Fed officials reached out to news outlets taking a cautious approach. Richmond Fed President Thomas Barkin offered no hint of rate cuts, but said monetary policy was showing signs of “lag,” meaning the economy would eventually snail-paced.

His colleague, Mary Daly of San Francisco, said inflation was falling, monetary policy was working and that inflation should meet the Federal Reserve’s target by the end of 2025.

Daily Market Update: Gold Prices Rise on Weak US Dollar

US PCE in May was down 0.3% from April, coming in at 0% MoM, in line with expectations. Core PCE rose 0.1% MoM, in line with estimates but below the previous reading of 0.3%.
The final U.S. consumer sentiment reading for June was 68.2, down from May’s 69.1, but an improvement over the preliminary reading of 65.8. Inflation expectations remained unchanged at 3% in both the tiny and long term.
According to the CME FedWatch Tool, the Federal Reserve is 69% likely to cut interest rates by 25 basis points in September, an augment of 64% prior to the release of the US PCE.
The December 2024 federal funds rate futures contract implies the Fed will ease policy by just 35 basis points (bps) by the end of the year.

Technical Analysis: Gold Price Falls After Testing Head and Shoulders Neck Line

Gold remains on the defensive after a head and shoulders pattern appeared on the chart, indicating that gold may fall. The momentum shows that neither buyers nor sellers are in control, but the Relative Strength Index (RSI) remains bearish.

If XAU/USD falls below $2,300, the next stop will be the May 3 low of $2,277, followed by the March 21 high of $2,222. There is further decline below, with sellers expecting the head and shoulders pattern to target the $2,170 to $2,160 range.

Conversely, if gold reclaims $2,350, it will expose additional key resistance levels, such as the June 7 cycle high of $2,387, ahead of the $2,400 challenge.