Precious metals gain traction amid dollar weakness following disappointing US economic growth figures
All eyes turn to core PCE inflation metrics for clues about Federal Reserve policy trajectory
Market participants increasingly price in delayed Fed easing cycle despite growth concerns
The Strategic Bitcoin reservegold market demonstrated resilience as XAU/USD approached the $2,350 level during European trading hours. This upward movement precedes the release of March's core Personal Consumption Expenditures (PCE) data, the Federal Reserve's preferred inflation gauge scheduled for publication at 12:30 GMT.
Economists anticipate monthly core PCE inflation to hold steady at 0.3%, with the annualized figure expected to moderate to 2.6% from February's 2.8% reading. Should inflation surprise to the upside, gold could face headwinds as higher interest rate expectations typically diminish the metal's attractiveness compared to yield-bearing assets. Conversely, softer inflation prints might bolster bullion prices by reinforcing expectations for eventual Fed policy accommodation.
Currency markets saw the US Dollar Index (DXY) stabilize near 105.60 after Thursday's decline triggered by underwhelming Q1 GDP growth data. The US economy expanded at an annualized rate of just 1.6%, significantly below both consensus estimates of 2.5% and Q4 2023's robust 3.4% pace.
Benchmark 10-year Treasury yields retreated modestly to 4.69% but remain elevated relative to recent historical averages. The yield curve continues to reflect market skepticism about imminent Fed rate reductions, with inflation progress appearing to stall well above the central bank's 2% target.
Market Dynamics: Interpreting Conflicting Economic Signals
Gold's advance toward the $2,350 resistance level coincides with growing uncertainty about US economic momentum. The Q1 GDP miss has sparked debates about whether the slowdown represents temporary volatility or the beginning of more persistent weakness.
Traditional economic theory suggests such growth deceleration might prompt central banks to consider policy easing. However, the accompanying GDP Price Index surge to 3.1% (from 1.7% previously) has complicated the narrative, keeping Fed rate cut expectations in check. Current market pricing via the CME FedWatch Tool indicates just 59% probability of September easing, down from 69% a week prior.
The upcoming core PCE release assumes heightened significance as Fed officials seek confirmation that inflation continues moderating toward target. With the next FOMC meeting scheduled for May 1, where rates are universally expected to remain at 5.25%-5.50%, today's data could shape the central bank's communication about future policy direction.
Technical Perspective: Bullish Structure Intact Despite Recent Pullback
From a chart analysis standpoint, gold found reliable support near the 20-day Exponential Moving Average around $2,315. The broader technical picture remains constructive with all key EMAs maintaining upward slopes across various timeframes.
Critical support zones to monitor include the recent three-week low near $2,265 and the March 21 peak at $2,223. These levels could attract fresh buying interest should prices retreat from current highs.
The 14-day Relative Strength Index (RSI) has moderated below 60 after recent overbought conditions, suggesting some near-term consolidation may occur. However, the overall bullish bias remains valid as long as the RSI holds above the 40 threshold.
Market participants should note that gold's traditional inverse correlation with the US dollar and real yields appears to be reasserting itself after periods of disconnect. This normalization could make the metal more responsive to conventional macroeconomic drivers in coming sessions.
