The price of gold (XAU/USD) weakened to just below $2040 amid market anticipation for Personal Consumption Expenditure (PCE) data in the United States for November, set to be released tomorrow, Friday.
Expectations suggest a larger decline in core inflation data amidst rising interest rates by the Federal Reserve.
Despite Federal Reserve officials warning that the central bank is currently focused on keeping interest rates steady to ensure inflation returns to 2%, investors are leaning towards gold investments due to optimism about interest rate cuts in 2024.
Statements from the Federal Reserve in last week’s policy announcement, where Atlanta Fed President Raphael Bostic sees only two rate cuts next year, contribute to this sentiment.
As we approach 2024, I anticipate gold prices to remain above $2000 in the short term, though the recent surge appears exaggerated. I believe the Fed will keep interest rates unchanged until the first half of 2024, followed by a 50 to 100 basis points rate cut, which could negatively impact gold prices. Thus, the upward trend for gold is likely to stall in the near term.
It’s worth noting that my long-term bullish outlook for gold relies on several drivers, particularly when the Federal Reserve begins cutting interest rates, reducing the opportunity cost for non-yielding gold. However, I expect economic, political, and geopolitical risks to remain high in 2024, supporting gold as a haven.
The upcoming U.S. elections will also increase uncertainty about future monetary policies, potentially encouraging investors to diversify their portfolios by adding gold investments. Central banks’ gold purchases are expected to continue, with the U.S. central bank possibly buying around 820 tons or more, further supporting positive price trends.
In conclusion, traders seem hesitant to take strong directional positions on gold, opting to wait and observe market movements concurrently with the release of the Federal Reserve’s preferred inflation gauge, the Core PCE Index, tomorrow.
The core inflation reading is expected to influence the Fed’s future policy decisions and may push the U.S. dollar out of the critical price range between 102.20 and 103.40 points, providing new momentum for gold. Short-term trades may be considered until the awaited economic data is released.