Gold gains as USD retreats from three-week high ahead of US PCE data

• Gold reverses an intraday dip as dovish Fed expectations cap the USD rally to a three-week top.
• Concerns about Trump’s tariffs and geopolitical risks further support the safe-haven commodity.
• The uncertainty over the pace of Fed rate cuts could limit gains ahead of the US PCE Price Index.

Gold (XAU/USD) turns positive for the second straight day following an intraday dip to the $3,734 area and touches a fresh daily peak during the first half of the European session on Friday. The commodity, however, remains confined in the previous day’s broader trading range as traders opt to wait for the release of the US Personal Consumption Expenditure (PCE) Price Index before placing fresh directional bets.

In the meantime, the growing acceptance that the US Federal Reserve (Fed) will lower borrowing costs again in October and December prompts some US Dollar (USD) profit-taking following the recent rally to a three-week high. This, along with fresh concerns about the potential economic fallout from US President Donald Trump’s new round of tariffs and geopolitical risks, lends additional support to the Gold price.

Meanwhile, the upbeat US macro data released on Thursday fueled uncertainty over the pace of interest rate cuts by the Fed. This could help limit the USD corrective decline and act as a headwind for the non-yielding Gold ahead of the key inflation data. Nevertheless, the commodity remains on track to register gains for the sixth consecutive week, though still overbought conditions warrant some caution for bulls.

Daily Digest Market Movers: Gold bulls look to US PCE data for Fed rate cut cuts

• The US Bureau of Economic Analysis’ (BEA) final estimate published on Thursday showed that the economy expanded at an annualized pace of 3.8% in the second quarter, significantly higher than the previously estimated growth of 3.3%. Moreover, the revision highlights a strong rebound from a 0.5% contraction recorded in the first quarter.
• Furthermore, the US Census Bureau reported that Durable Goods Orders rose by 2.9% month-over-month in August, reversing a revised 2.7% slump in July and better than market estimates of a 0.5% fall. Adding to this, US Initial Jobless Claims dropped to 218K for the week ending September 20 from the previous week’s 232K (revised from 231K).
• The strong data pointed to economic resilience despite headwinds stemming from US President Donald Trump’s trade tariffs. In fact, Trump on Thursday announced a 100% tariff on imports of branded or patented pharmaceutical products, 25% levies on imports of all heavy-duty trucks, and 50% tariffs on kitchen cabinets starting from October 1.
• Federal Reserve Governor Stephen Miran told Fox Business on Thursday that there is no material evidence of tariff-driven inflation, but that seems to be holding up policymakers. The economy is more vulnerable to downside shocks because Fed policy is too tight and the policy is 200 basis points too restrictive, Miran added further.
• Separately, Chicago Fed President Austan Goolsbee noted that the job market seems to be cooling, but inflation is going up, and counting on inflation being transitory makes him uneasy.  Goolsbee added that rates can go down a fair bit more if inflation heads toward 2%, but was wary of frontloading rate cuts, and that we must get inflation to 2%.
• Kansas City Fed President Jeffrey Schmid said that the decision to lower interest rates was appropriate as the recent data points to rising risks to the job market. Fed policy is slightly restrictive, which is the right place to be; inflation is still too high, and going forward, we will be data-dependent on monetary policy choices, Schmid noted further.
• Furthermore, San Francisco President Mary C. Daly made additional comments, saying that the impact of tariffs on inflation hasn’t been as large as forecast. We are in a tradeoff space and need to balance risks. A little more rate cutting will be needed over time, though the Fed still needs to watch both sides of its mandate, Daly stated further.
• Nevertheless, the CME Group’s FedWatch Tool indicated that traders are still pricing in an over 85% chance that the Fed will lower borrowing costs by 25 basis points in October, and odds for another rate cut in December stand at just over 60%. This keeps a lid on the recent US Dollar rally to a three-week high and could support the Gold price.
• Traders now look forward to the release of the US Personal Consumption Expenditure (PCE) Price Index, due later during the North American session. The core PCE Price Index is considered the Fed’s preferred inflation gauge and might influence expectations about the future rate-cut path, which, in turn, will drive the USD and the non-yielding yellow metal.

Gold defies still overbought daily RSI; could retest all-time high near $3,790

From a technical perspective, the XAU/USD pair has been facing some resistance near a downward-sloping trend line extending from the all-time peak touched earlier this week. The downside, however, remains cushioned near the $3,720-3,715 horizontal zone, which should now act as a key pivotal point for intraday traders. Sustained weakness below, leading to a subsequent break through the $3,700 mark, might prompt some technical selling and pave the way for an extension of this week’s retracement slide from the record high. The subsequent downfall could drag the Gold price to the $3,650 intermediate support en route to the $3,610-$3,600 region.

Meanwhile, the aforementioned trend-line is currently pegged near the $3,753-3,754 area and should act as an immediate strong barrier for the Gold price. A sustained move beyond, however, might set the stage for a move towards challenging the all-time peak, around the $3,790 area touched on Tuesday. Some follow-through buying and acceptance above the $3,800 mark would be seen as a fresh trigger for the XAU/USD bulls, which, in turn, should pave the way for the resumption of a well-established uptrend witnessed over the past month or so.