XAU/USD struggle to $2,530 continues ahead of US PCE inflation data

• Gold price rally weakens as focus shifts to core US PCE inflation data.
• The US dollar holds weekly gains on the back of Treasury yields paid, an upbeat mood.
• Will the price of gold erupt to new highs? RSI remains optimistic.

The price of gold was back in the red early on Friday after facing strong resistance near $2,530 on Thursday. Gold buyers are turning cautious and refraining from placing new bets on the core US personal consumption expenditure (PCE) inflation showdown.

Gold price looks to US PCE inflation for new direction

The core PCE price index, the US Federal Reserve’s (Fed) preferred measure of inflation, is the most relevant economic data released this week and will help determine the outlook for a Fed rate cut after September.

These data will be closely watched, especially after Thursday’s upward revision to second-quarter US Gross Domestic Product (GDP) data, which cooled market expectations of a big rate cut in September.

The U.S. economy grew last quarter at an annual pace of 3 percent, fueled by strong consumer spending and business investment, an upgrade from the government’s initial reading of 2.8 percent. The market priced in just 34% odds of a 50 basis point (bp) decline next month, down from 38% a day earlier, according to CME Group’s FedWatch tool.

Following the US GDP revision, the US dollar bounced back strongly, tracking the ongoing recovery in US Treasury yields along the curve. However, this failed to deter gold buyers as they retested record highs at $2,532.

Gold prices capitalized on renewed geopolitical concerns between Russia and Ukraine after the Ukrainian military struck oil and artillery depots in the Rostov Kirov and Voronezh regions on Thursday. Simmering tensions between Israel and Iran are also keeping the gold price safe haven demand.

In addition, lower inflation in Spain and Germany fueled expectations that the European Central Bank (ECB) could lean towards an interest rate cut in September. Renewed hopes of a low global interest rate regime also fueled the gold price rally.

However, the price of gold snapped its recovery momentum early on Friday as traders remain hopeful of a hot US PCE inflation print that could pour cold water on bets for further Fed easing later this year.

The headline PCE price index is seen rising at a 2.6% annual pace in July, while the core PCE index is expected to rise 2.7% from a year ago in the same period. Previous readings were 2.5% and 2.6% respectively.

Aside from the US PCE inflation data, gold prices could also be influenced by month-end flows and position adjustments ahead of next week’s release of Nonfarm Payrolls.

Gold Price Technical Analysis: Daily Chart

As gold prices extend their consolidation phase this week, US PCE inflation data could trigger a range break.

That said, risks for an upside break seem likely as the symmetrical triangle break is in play and the 14-day RSI is holding firm well above 50.

Gold buyers remain in control as long as they hold above the triangle, with resistance turned into support near $2,470.

The 21-day simple moving average (SMA) is approaching that area, making it strong support.

The initial demand area is seen at the $2,500 threshold for the gold price, below which the August 23 low of $2,485 will be tested.

A sustained breach of the latter could expose the downside to the aforementioned triangle resistance turned support near $2,470.

On the other hand, gold buyers need to break the record high of $2,532 on a daily closing basis to face the next key barrier at the $2,550 level.

Acceptance above the latter could challenge the round level of $2,600 en route to the triangle target measured at $2,660.