Gold retreats ahead of US PCE inflation against a hawkish Fed backdrop

Gold slips as the Fed keeps further policy tightening on the table.
December rate-hike expectations come into focus ahead of the US PCE inflation report.
Sellers retain the advantage in XAU/USD, with RSI and MACD bearish and prices near the lower Bollinger Band.

Gold (XAU/USD) remains under pressure on Thursday, with prices around $4,030 at the time of writing, a decline of 0.88% on the day. Although the Federal Reserve (Fed) left interest rates unchanged at its October meeting, its latest policy announcement kept a December increase firmly on the table. Attention now shifts to US Personal Consumption Expenditures (PCE) inflation figures for further indications of the policy path.

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

An initially mildly dovish market response to Wednesday’s decision lifted Gold and sent the US Dollar and shorter-dated Treasury yields lower, as policymakers paused despite growing evidence of inflationary pressure. The Federal Open Market Committee (FOMC) voted 10-2 to retain rates at 3.75%-4.00%, with Governor Lisa Cook and Cleveland Fed President Beth Hammack backing a 25-basis-point rise.

Despite that initial response, the broader policy signal was hawkish. Reaffirming his commitment to price stability, Chair Kevin Warsh said that “while overall financial conditions are tighter, I’m unwilling and unable to call them tight.” He also emphasised that the fight against inflation did not hinge on a specific date or one economic release.

The data-dependent approach to Fed policy was reinforced by Chair Warsh’s observation that the “FOMC will receive a lot more data in the weeks through the next meeting,” according to the discussion highlighted by Rabobank analysts. They note that, even as the Committee held policy steady, it “indicated a need for more information to help determine the appropriate policy stance.”

Further tightening remains firmly on the table in the assessment of Rabobank’s US strategist, who concludes that, “without providing forward guidance, Warsh essentially made the case for a rate hike in December,”

According to the CME FedWatch Tool, markets currently assign around an 80% probability to a December rate increase. The Fed’s preferred inflation measure will put that pricing to the test at 12:30 GMT, when it is due alongside the advance estimate of third-quarter Gross Domestic Product (GDP).

After falling the previous day, the US Dollar Index (DXY) remains firm above 102.00 ahead of the releases. The index measures the Greenback against a basket of six major currencies.

Higher interest rates raise the opportunity cost of holding non-yielding Gold, leaving the possibility of additional hikes as a significant drag on the metal. If PCE inflation exceeds expectations, bets on a December increase could strengthen and weigh further on Gold. Softer data, by contrast, could temper those expectations and create room for a near-term recovery.

Technical Analysis: Can XAU/USD Stay Above the Lower Bollinger Band?

Bearish signals persist on the daily XAU/USD chart. Prices remain beneath the 20-day Simple Moving Average (SMA) at $4,113, also the middle Bollinger Band, leaving the short-term bias tilted to the downside. At around 38, the Relative Strength Index (RSI) signals subdued buying momentum but is not yet in oversold territory. Sellers also retain the advantage according to the Moving Average Convergence Divergence (MACD), which is still marginally negative.

Any recovery would first face the 20-day SMA around $4,113, with the upper Bollinger Band at $4,229 providing the next resistance. Holding above both levels could clear a path towards $4,400.

Further losses are likely to find a cushion at the lower Bollinger Band near $3,998 and the earlier support area around $4,000-$3,950. A clear break beneath that zone, however, could set off a more pronounced decline.

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

Gold: Frequently Asked Questions

What attracts investors to Gold?

Widely used as both a store of value and a medium of exchange, Gold has held an important place throughout human history. Beyond its lustre and use in jewellery, the precious metal is now widely regarded as a safe-haven asset, or an investment considered attractive during periods of turmoil. Its independence from any particular issuer or government also underpins its widespread reputation as a hedge against inflation and currency depreciation.

Which buyers hold the most Gold?

The largest holders of Gold are central banks. To support their currencies during unsettled periods, they often diversify reserves by purchasing Gold, helping strengthen perceptions of both the economy and the currency. Substantial Gold reserves can also bolster confidence in a country’s solvency. World Gold Council data show that central banks increased their reserves by 1,136 tonnes of Gold, valued at around $70 billion, in 2022. That was the largest annual purchase on record. Emerging-economy central banks, including those in China, India and Turkey, are rapidly expanding their Gold reserves.

How does Gold move relative to other assets?

Both the US Dollar and US Treasuries are major reserve and safe-haven assets, and Gold is inversely correlated with them. A weakening Dollar generally supports Gold, allowing investors and central banks to diversify their holdings during turbulent periods. The metal also has an inverse relationship with risk assets: rising stock markets typically weigh on Gold prices, whereas selling in riskier markets generally supports the precious metal.

Which factors influence Gold prices?

Several factors can drive Gold prices. Its safe-haven appeal means geopolitical turmoil or concerns over a deep recession can send prices sharply higher. Since Gold offers no yield, lower interest rates generally support it, while more expensive borrowing usually puts pressure on the yellow metal. Nevertheless, the behaviour of the US Dollar (USD) drives most price movements because Gold is quoted in dollars (XAU/USD). Dollar strength tends to restrain Gold prices, while a softer Dollar is likely to lift them.