Gold rallies ahead of US inflation data

Gold prices rallied on Thursday, rising above $2,350 per ounce as the dollar weakened. If gold prices rise, resistance may be encountered again at the all-time high of $2,450 per ounce, while if gold prices decline, support may be encountered near $2,320 per ounce. 

The US inflation outlook remains in focus this week with the Core PCE Price index due on Friday. This is the Federal Reserve’s preferred inflation gauge and may affect the Fed’s rate outlook and its release is also likely to cause volatility in gold prices.

Gold prices have been typically directed by the dollar’s movement, as the competing gold typically loses appeal as an investment when the dollar rises. The dollar dipped on Thursday and the dollar index retreated to 104.7. US treasury yields remained steady, with the US 10-year bond yielding approximately 4.56%.

Gold prices have experienced a meteoric rise recently and are trading in overbought territory. Geopolitical tensions raise the appeal of safe-haven assets boosting gold prices. Concerns that the crisis in the Gaza area may spread to neighboring countries are raising demand for safe-haven assets keeping gold prices high. 

Gold prices are affected by central banks’ interest rates. A restrictive monetary policy hinders economic growth lowering the global economic outlook and putting pressure on gold prices. The US Federal Reserve kept interest rates unchanged at its latest policy meeting, within a target range of 5.25% to 5.50%. 

Odds of rate cuts are becoming more moderate, putting pressure on gold prices, as policymakers state that they do not intend to start reducing interest rates until there is more evidence of disinflation. The uncertainty around the US Fed rate outlook is causing volatility in gold prices. Fed policymakers have expressed that the progress of disinflation in the first quarter of the year was disappointing and that interest rates would need to remain at high levels for longer for inflation to cool sufficiently.

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Written by:
Myrsini Giannouli

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