Gold prices experienced a 0.68% decline on Friday following data indicating a stabilization in US inflation for April, potentially increasing the likelihood of a Federal Reserve (Fed) rate cut in September.
XAU/USD remained within a narrow range near a three-week low reached on Friday. Despite hopes for a ceasefire in Gaza and a generally positive risk sentiment, the pair’s upward momentum was curtailed. Traders exercised caution, awaiting significant US macroeconomic data releases scheduled for the week, particularly Friday’s Nonfarm Payroll (NFP) report. Moreover, the interest rate decision from the Bank of Canada (BOC) on Wednesday and the European Central Bank’s (ECB) monetary policy meeting on Thursday are anticipated to impact gold prices, a non-yielding asset.
The latest US Personal Consumption Expenditures (PCE) Price Index inflation report indicated a slowdown in inflation. However, it failed to substantially increase the probability of a Fed rate cut, suggesting that the central bank might require more time to achieve its 2% inflation target. Initial expectations for the first rate cut in March have been deferred to September, putting downward pressure on XAU/USD and elevating the opportunity cost of holding non-yielding assets. In the geopolitical arena, Israel’s acceptance of President Joe Biden’s Gaza ceasefire proposal, amidst ongoing conflicts in Rafah over the weekend, as reported by the BBC, was observed. Investors are closely monitoring these developments, with heightened tensions potentially driving safe-haven flows and bolstering gold prices.
During early European trading hours, XAU/USD experienced a downward trend. Attention is focused on the upcoming US ISM Manufacturing Purchasing Managers’ Index (PMI) report at 2:00 p.m. UTC. A lower-than-expected figure could boost XAU/USD, potentially pushing the pair towards the 2,350 mark. Conversely, if the data surpasses expectations, the bearish trend in XAU/USD is anticipated to persist. According to Reuters analyst Wang Tao, spot gold may breach support at 2,319 and decline towards 2,302.
