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Gold prices anxiously await the Fed’s preferred inflation gauge, will XAU/USD fall?

Gold prices flat before the Fed’s preferred inflation gauge; a stronger beat could reimpose hawkish 2023 Fed estimates and this may hurt XAU/USD as it eyes the 20-day SMA above.

Gold prices were little changed over the past 24 hours as bullion traders struggled to find direction in the aftermath of strong gains earlier this week.

The latter was triggered by actions from the Bank of England to temporarily inject liquidity into the financial system. This is to help avoid pension fund insolvency issues amid surging longer-term government bond yields.

To make a long story short, this triggered rising expectations that other central banks could follow in the BoE’s footsteps. Markets cut back hawkish 2023 Federal Reserve expectations, sending the US dollar lower as Treasury yields wobbled. When the latter two are falling simultaneously, this tends to bode well for the yellow metal.

A lack of follow-through since then could speak to lacking conviction. More to the point, XAU/USD traders are likely nervously awaiting US PCE data over the remaining 24 hours. This will contain the Fed’s preferred inflation gauge. A stronger surprise could easily revive 2023 rate hike bets, reversing the upward move in the yellow metal earlier this week.

For this reason, it seems traders are being prudent ahead of such crucial data. The PCE Deflator is seen at 4.7% y/y for August, up from 4.6% prior.

The Citi Economic Surprise Index has been trending higher since June, indicating that economists seem to be underpricing the health and vigor of the country. As such, an upward surprise may boost the US dollar and bond yields, weighing against gold.

Gold technical analysis

Gold is struggling to push further above the 78.6% Fibonacci extension at 1651 after closing above it earlier this week. This means prices remain under the 20-day Simple Moving Average which stands as immediate resistance. It could reinstate the downward focus. If not, the long-term falling trendline from March would be in focus next. Clearing the 100% level at 1609 exposes the 123.6% point at 1562.64.

XAU/USD daily chart

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This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.

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