Key Insights
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Gold prices rally edged lower despite lowering inflationary pressures
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The Core PCE signaled falling price pressures.
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Treasury yields edged lower on economic data.
Gold prices rise while the dollar falls as investors consider lower Fed rate hikes for the June and July meetings. The dollar declined as there might be a pause in the Fed rate tightening cycle, which could send the dollar index even lower.
Benchmark yields edged lower as there might be a potential pullback in rising inflation. The ten-year yield moved lower by 1 basis point.
The Core PCE, the Fed’s preferred inflation gauge, moved higher by 4.9% in April from the previous year. While spending beat forecasts, personal income rose less than expectations.
The Core PCE for March rose by 0.9%, while the index only increased by 0.2% in April. April’s move indicates that mounting inflation pressures could be slowing.
The PCE, including food and energy, rose 6.3% in April from the previous year. In March, the PCE rose 6.6%, showing a slightly slower pace. Consumers rotate into leisure and travel from spending on goods.
A series of Fed hikes are likely to take place in June and July to rein in inflation as the reading indicates a still-elevated level.
Technical Analysis
Gold prices snap a two-day losing steak and trade above the 1850 mark. However, the XAU/USD rally likely will not last over the long term as Fed rate hikes underpin a stronger dollar.
Inflation pressures are potentially easing, undermining a rally for the precious metal. Support is seen near the 10-day moving average of 1842. Resistance is seen near the 50-day moving average near the 1901 level.
Short-term momentum turns positive as the Fast Stochastic generated a crossover buy signal. Prices are no longer oversold as the fast stochastic prints a reading of 78.33, headed for the overbought trigger level of 80.
Medium-term momentum turns positive as the MACD generated a crossover buy signal.
This occurs as the 12-day moving average minus the 26-day moving average crosses below the 9-day moving average of the MACD line. The MACD (moving average convergence divergence) histogram has a negative trajectory that points to lower prices.
This article was originally posted on FX Empire
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