- XAU/USD fell to $2,646 following September inflation data indicating progress toward the Fed's 2% target.
- The US 10-year Treasury yield decreased by five basis points, while the US Dollar Index slipped 0.16% to 100.41.
- Geopolitical tensions have escalated as Israel conducts strikes in Lebanon; however, gold prices lack upward momentum as traders take profits.
Gold prices dipped to a three-day low below $2,650 after the US Bureau of Economic Analysis (BEA) reported that September inflation is moving closer to the Federal Reserve's (Fed) target. Despite this data suggesting further easing by the Fed, gold struggled to gain momentum as analysts noted that traders were likely booking profits. The XAU/USD is currently trading at $2,657, down nearly 0.50%.
Earlier, the BEA indicated that the Fed's preferred inflation measure, the Personal Consumption Expenditures Price Index (PCE), is edging closer to the central bank's 2% target, based on August data. Meanwhile, core PCE increased by 0.1 percentage point compared to July.
Following the inflation report, the yield on the US 10-year Treasury note fell by five basis points to 3.749%, resulting in a decline in the US Dollar Index (DXY), which slipped 0.16% to 100.41.
The CME FedWatch Tool showed that the odds of a 50 basis point (bps) rate cut at the November meeting have increased.
Given the market’s initial reaction, it was anticipated that gold prices might be poised for another record high. However, the XAU/USD dropped below the September 26 daily low of $2,654, indicating a potential for a deeper pullback.
Additional data revealed an improvement in the University of Michigan Consumer Sentiment index for September in its final reading.
Moreover, tensions are escalating in the Middle East, as Israel conducted strikes on Hezbollah’s main headquarters in southern Beirut on Friday. An Israeli official stated that while the government hopes to avoid a ground invasion of Lebanon, it is not ruling it out.
According to Reuters, gold ETFs experienced modest net inflows last week but have yet to fully contribute to gold’s rally. Analysts expect increased activity from ETFs in the coming months.
Daily Digest Market Movers: Gold Price Declines as US Inflation Approaches 2% Target
- August's US Personal Consumption Expenditures (PCE) index registered at 2.2% year-over-year, a decrease from 2.5% the previous month and slightly below consensus estimates.
- Core PCE rose modestly, as anticipated, from 2.6% to 2.7% year-over-year for the same period.
- The University of Michigan (UoM) Consumer Sentiment index for September improved from 69.0 to 70.1. One-year inflation expectations dipped from 2.8% to 2.7%, while five-year expectations increased from 3% to 3.1%.
- Market participants have fully priced in at least a 25 basis point (bps) rate cut by the Fed. However, the likelihood of a 50 bps cut has decreased to 54.7%, down from 60% two days prior, according to the CME FedWatch Tool.
XAU/USD Technical Analysis: Gold Price Slumps and Hovers Around $2,650
Gold reached an all-time high of $2,685 but has since shown a downward trend, as buyers failed to achieve new record highs, paving the way for a potential pullback. Short-term momentum appears to favor sellers, with the Relative Strength Index (RSI) moving out of overbought territory and targeting the 60 mark.
If XAU/USD falls below $2,650, expect a test of the September 18 daily high at $2,600. The next key support levels to watch will be the September 18 low of $2,546, followed by the 50-day Simple Moving Average (SMA) at $2,488.
Conversely, if XAU/USD extends its rally beyond the current year-to-date peak of $2,685, the next resistance level would be $2,700, followed by $2,750 and $2,800.
