XAU/USD correction remains ongoing amid month/quarter end flows

• The gold price is keeping its modest performance in Asia intact on Friday morning as US PCE data comes out.
• The US dollar is recovering from early declines despite low Treasury yields.
• Extreme overbought conditions on the daily chart and end of month/quarter flows risk gold price correction.

The price of gold is within striking distance of a new record high of $2,686 as buyers take a breather and consolidate weekly gains in the countdown to the release of the US personal consumption expenditure (PCE) price index on Friday, May late.

Gold price snaps record rally as correction risks loom

Despite recent dovish comments from US Federal Reserve (Fed) policymakers and mixed US economic data, market expectations for a 50 basis point (bps) interest rate cut in November are easing, the chances of a such moves now being at 50%, declining. from about 62% seen a day ago, CME Group’s FedWatch Tool shows.

Weak bets on a huge Fed rate cut at the next meeting appear to be fueling another rally in the US dollar (USD), checking gold’s record high. However, dovish comments from Fed Governor Lisa Cook overnight and a risk-on profile in the market due to fresh stimulus measures from China continue to limit gold’s downside.

Gold’s next directional move and expectations of a big Fed rate cut in November are based on the Fed’s most preferred future inflation gauge, the core PCE price index, which is due to be released in US trading on Friday. Core US PCE inflation is seen steady at 0.2% month-on-month in August, while on an annual basis, the index is likely to edge up slightly to 2.7% in the same period from 2.6% in July.

Warmer-than-expected core PCE inflation data could defy expectations of a November Fed rate cut, kicking off a sustained recovery in the US dollar against its major rivals from more than a year highs. In this case, a steep corrective decline in the price of gold from near lifetime highs could occur. Conversely, a negative surprise in core readings could increase the chances of a big Fed rate cut again, setting another gold price record at the expense of the USD.

However, the reaction to the PCE inflation report could be temporary as month-end as well as quarter-end flows could come into play and roil the markets. Traders are also likely to resort to profit-taking in the gold price ahead of next week’s high-impact US payrolls data.

Additionally, a speech by Fed Governor Michelle Bowman could increase potential volatility around the price of gold.

Gold Price Technical Analysis: Daily Chart

Nothing is changing for the price of gold from a near-term technical perspective as it remains in extremely overbought territory, suggesting that a significant correction could be underway.

The 14-day Relative Strength Index (RSI) is currently trading above the 76 level, warranting caution for buyers.

If the buyers regain their lost momentum, acceptance above the record level of $2,686 is essential to unleash further upside towards the $2,700 barrier, followed by the psychological $2,750 mark.

Instead, any correction in the gold price will likely test the September 24 low of $2,623, below which the $2,600 threshold will come into play.

Further south, gold sellers could target the September 20 low of $2,585.