Gold Spots (XAUUSD) lustre dimmed this week, down over 0.3% and facing a potential second consecutive week of losses. The subdued performance stems from the mixed bag of December’s US Personal Consumption Expenditures (PCE) data. While headline PCE remained steady at 2.6%, matching expectations, the core gauge, the Fed’s preferred inflation measure, edged higher to 0.2% from 0.1%. This slight uptick, albeit below forecasts, sparked concerns about a potential delay in the Fed’s easing cycle, sapping some of the safe-haven appeal from gold.
Adding to the headwinds, the US Dollar has shown signs of strength in the wake of the PCE data. This could further pressure gold prices, as a stronger dollar makes the dollar-denominated metal more expensive for foreign investors.
However, the disinflationary trend remains intact, with core PCE falling for the 11th straight month and hitting its lowest level since March 2021. This ongoing decline in inflation could eventually lead the Fed to pivot towards rate cuts, potentially injecting a shot of adrenaline into gold prices later in the year.
Technical
Gold’s price action paints a picture of indecision following the PCE data. Trapped within a descending triangle pattern, the price currently sits below the 20-SMA (green), 50-SMA (blue), and 100-SMA (orange) lines, indicating short-term bearish momentum.
The downward-sloping 100-SMA hovering above the shorter-term SMAs reinforces this bearish bias. Additionally, the RSI, currently at 60.03, is trending downwards, suggesting weakening bullish sentiment.
Should the bears maintain control, initial support lies at the 23.60% Fibonacci retracement level ($2,016.23/ounce). A break below this level could open the door for further selling pressure, potentially pushing the price towards the $2,008.27/ounce and $2,001.95/ounce support levels in the near term.
However, the bulls’ haven’t thrown in the towel yet. A break above the $2,024.97/ounce level, the 38.20% Fibonacci retracement level, could signal a short-term reversal, potentially leading to a test of the 50.00% Fibonacci retracement level ($2,032.04/ounce) and the 61.80% Fibonacci retracement level ($2,038.94/ounce).
Summary
Gold faces a challenging week ahead, navigating choppy waters in the wake of the mixed PCE data and a potentially stronger Dollar. While the technical picture suggests short-term bearish momentum, the long-term disinflationary trend could eventually lead to a Fed pivot and a gold price rebound.
Sources: TradingView, Trading Economics, Reuters, Dow Jones Newswire.
Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
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