Gold Price Forecast: XAU/USD wobbles around $3,750 as investors await US PCE Inflation data

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Gold price (XAU/USD) trades in a tight range around $3,750 during the European trading session on Friday. The yellow metal consolidates as investors await the United States (US) Personal Consumption Expenditure Price Index (PCE) data for August, which will be published at 12:30 GMT.

Gold price trades sideways around $3,750 ahead of the US PCE Inflation data for August.
The US PCE inflation is expected to have grown steadily at an annual pace of 2.9%.
Upbeat US Q2 GDP data has weighed on Fed dovish expectations.

Investors will closely track the US inflation data to get cues about the pace at which the Federal Reserve (Fed) will reduce interest rates in the remainder of the year, with officials expressing that the monetary policy path will remain on the downside.

The US core PCE inflation, which is the Fed’s preferred inflation gauge, is estimated to have grown at a moderate pace of 0.2% on a monthly basis against the prior reading of 0.3%, with yearly figures rising steadily by 2.9%.

On Thursday, Fed dovish expectations eased after the revised US Q2 Gross Domestic Product (GDP) data showed that the economic growth was stronger than preliminary expectations. The data showed that the economy expanded by 3.8%, faster than flash estimates of 3.3%.

According to the CME FedWatch tool, the probability of the Fed cutting interest rates by 50 bps by the year-end eased to 62% from 73.3% seen on Wednesday.

Theoretically, easing Fed dovish expectations bode poorly for non-yielding assets, such as Gold.

Gold technical analysis

Gold price trades inside Thursday’s trading range around $3,750 on Friday. The near-term trend of the Gold price remains bullish as the 20-day Exponential Moving Average (EMA) slopes higher around $3,644.80. An upward-sloping trendline from the August 22 low around $3,321.50 will act as key support for the Gold price.

The 14-day Relative Strength Index (RSI) oscillates inside the 60.00-80.00 range, suggesting a strong bullish momentum.

On the upside, the Gold price could extend its upside towards $3,900 if it breaks above the September 23 high of $3,791.

Gold daily chart

Gold FAQs

Why do people invest in Gold?

Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.

Who buys the most Gold?

Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.

How is Gold correlated with other assets?

Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.

What does the price of Gold depend on?

The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.