Gold weakens ahead of US PCE inflation amid hawkish Fed outlook

Gold retreats as the Fed leaves the door open to further tightening.
US PCE inflation report takes centre stage as traders assess the likelihood of a December hike.
XAU/USD holds near the lower Bollinger Band as RSI and MACD favour sellers.

Gold (XAU/USD) trades on the back foot on Thursday as the Federal Reserve’s (Fed) latest monetary policy announcement leaves a December hike firmly in play after the US central bank keeps interest rates steady at its October meeting. Traders now turn to US Personal Consumption Expenditures (PCE) inflation data for fresh clues on the policy outlook. At the time of writing, XAU/USD trades around $4,030, down 0.88% on the day.

TMGM Analysis: Financial Market News, Economic Calendar & Market Insights

The Federal Open Market Committee (FOMC) voted 10-2 on Wednesday to hold rates at 3.75%-4.00%. Governor Lisa Cook and Cleveland Fed President Beth Hammack favoured a 25-basis-point increase. The decision to pause despite mounting evidence of inflationary pressures drew a mildly dovish initial reaction, lifting Gold while pushing the US Dollar and shorter-dated Treasury yields lower.

Still, the overall message remained hawkish. Chair Kevin Warsh reiterated his commitment to delivering price stability, noting that “while overall financial conditions are tighter, I’m unwilling and unable to call them tight.” He also stressed that tackling inflation was not about a particular date or a single economic release.

Analysts at Rabobank highlight that, despite leaving policy unchanged, the Committee “indicated a need for more information to help determine the appropriate policy stance.” Chair Warsh underscored that the “FOMC will receive a lot more data in the weeks through the next meeting,” reinforcing the data-dependent nature of the Fed’s reaction function.

Rabobank’s US strategist concludes that, “without providing forward guidance, Warsh essentially made the case for a rate hike in December,” suggesting that the door to further tightening remains firmly open.

Traders currently price in around an 80% chance of a December rate hike, according to the CME FedWatch Tool. Those expectations face a fresh test from the Fed’s preferred inflation gauge, due at 12:30 GMT alongside the advance estimate of third-quarter Gross Domestic Product (GDP).

The US Dollar Index (DXY), which tracks the Greenback’s value against a basket of six major currencies, holds firm above 102.00 ahead of the data, following the previous day’s decline.

For Gold, the prospect of further rate hikes remains a key headwind, as higher interest rates increase the opportunity cost of holding the non-yielding metal. A stronger-than-expected PCE reading could reinforce December hike bets and push Gold lower, while softer figures could ease those expectations and offer scope for a short-term rebound.

Technical Analysis: XAU/USD holds above the lower Bollinger Band

On the daily chart, XAU/USD remains below the 20-day Simple Moving Average (SMA) at $4,113, which forms the middle Bollinger Band, keeping the near-term bias bearish. The Relative Strength Index (RSI) hovers around 38, pointing to weak buying momentum without reaching oversold territory. Meanwhile, the Moving Average Convergence Divergence (MACD) remains slightly negative, suggesting that sellers retain control.

On the upside, initial resistance stands at the 20-day SMA near $4,113, followed by the upper Bollinger Band at $4,229. A sustained move above these levels could open the door toward $4,400.

On the downside, the lower Bollinger Band near $3,998 and the previous support zone around $4,000-$3,950 are likely to keep further declines in check. However, a decisive break below this area could trigger a deeper decline.

(The technical analysis of this story was written with the help of an AI tool. Know more.)

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.