Gold price hits three-day low, retreating after US PCE data

• XAU/USD slips to $2,646 after September inflation data suggests progress towards the Fed’s 2% target.
• The U.S. 10-year Treasury yield fell five basis points, while the U.S. dollar index fell 0.16 percent to 100.41.
• Geopolitical risks rise as Israel strikes Lebanon, but gold fails to gain momentum as traders take profits.

Gold fell to a three-day low below $2,650 after the US Bureau of Economic Analysis (BEA) revealed that September inflation continued to move towards the Federal Reserve’s (Fed) target. Even though this justified further easing by the Fed, the gold metal failed to gain traction as analysts speculated that traders were taking profits. XAU/USD is trading at $2,646, down nearly 1%.

Earlier, the BEA revealed that the Fed’s preferred inflation gauge, the Personal Consumption Expenditure (PCE) Price Index, was slightly closer to the central bank’s 2% target, according to August data. Meanwhile, core PCE rose by a tenth of a percentage point compared to July data.

The 10-year U.S. Treasury yield fell five basis points to 3.749 percent following the data. Consequently, the greenback fell as the US Dollar Index (DXY) fell 0.16% to 100.41.

After the data, odds of 50 basis points (bps) of easing at the November meeting rose, according to the CME FedWatch tool.

Given the market reaction, gold prices were expected to be set at another record high. However, XAU/USD dropped below the daily low of $2654, opening the door for a deeper pullback.

Other data showed that the University of Michigan Consumer Sentiment for September improved in its final reading.

In addition, an escalation of the Middle East conflict between Israel and Hezbollah is looming. Israel claimed to have struck Hezbollah’s main headquarters in southern Beirut on Friday. An Israeli official said the government hoped not to proceed with a ground invasion of Lebanon, but would not rule it out.

Reuters revealed that gold ETFs posted modest net inflows last week and have yet to fully contribute to gold’s rally, although analysts expect more activity from ETFs in the coming months.

Daily Market Reasons: Gold price falls as US inflation nears 2% target.

• US PCE in August was 2.2% y/y, down from 2.5% a month earlier and slightly lower than the consensus estimate.
• Core PCE rose modestly, as expected, from 2.6% to 2.7% YoY for the same period.
• The University of Michigan (UoM) consumer sentiment for September improved from 69.0 to 70.1. One-year inflation expectations fell from 2.8% to 2.7%, while five-year expectations rose from 3% to 3.1%.
• Market participants fully priced in a rate cut of at least 25 bps by the Fed. However, odds of a 50bps cut fell to 54.7%, down from a 60% chance two days ago, according to CME’s FedWatch tool.

XAU/USD Technical Analysis: Gold price is falling and is hovering around $2,650

Gold price hit an all-time high of $2,685 and remains bullish. However, buyers failed to hit new highs, opening the door for a pullback. Short-term momentum favors sellers as the Relative Strength Index (RSI) breaks out of overbought territory, targeting the 60 mark.

If XAU/USD breaks below $2,650, look for a test of the September 18 daily high at $2,600. The next key support levels to test will be the September 18 low of $2,546, followed by the 50-day Simple Moving Average (SMA) at $2,488.

Conversely, if XAU/USD extends its rally beyond the current year-to-date (YTD) high of $2,685, the next resistance would be the $2,700 level. The $2,750 level is next, followed by $2,800.