- Core-PCE is expected to hold steady 2.8% YoY
- Sticky inflation could push back Fed rate cut expectations
- High rates for longer could put Gold on the back foot
- Silver has outperformed Gold this year
Gold prices are holding steady around the 2350 level, but are on track for a fourth straight monthly rise as investors look ahead to US inflation data. Core PCE, the Federal Reserve’s preferred measure for inflation, could provide the markets with further insight into how the central bank could proceed with rate cuts this year.
Gold is on track to rise 2.6% this month and trades 13% higher so far this year owing to central bank buying and ongoing geopolitical risk, which is driving safe-haven demand.
Now, the market is waiting for the release of US core PCE data for clues over the possible timing and scale of Federal Reserve interest rate cuts this year. Economists expect core personal consumption expenditure to rise 0.3% MoM in April, in line with the March reading. On an annual basis, core PCE is expected to be 2.8%, which is also in line with the March reading.
How could core-PCE inflation impact Gold’s price?
Should core PCE come in line with expectations, this would suggest that inflation remained sticky last month, which could delay rate cuts even further in 2024.
A cooler-than-expected core PCE would benefit non-yielding gold, helping the precious metal rise, particularly after yesterday’s weak US Q1 GDP reading.
US Q1 GDP was downwardly revised to 1.3% quarter on quarter, lower than the preliminary rating of 1.6% and down from 3.4% reported in the fourth quarter.
However, a hotter-than-expected core PC could lift the USD and put gold on the back foot. That said, it may not reverse the broader uptrend, with buyers likely to aggressively defend the $2300 support.
Heading into the reading, the market has reined in rate cut expectations after Federal Reserve officials struck a more hawkish tone in recent speeches. Fed officials have said that they need more evidence that inflation is cooling towards the central bank’s 2% target and warned that interest rates may need to stay high for longer. Higher rates increase the opportunity cost of holding non-yielding gold.
According to the CME Fed watch tool, the market is pricing in a 50% probability of a rate cut in the September meeting and a 65% probability of a rate cut in November.
Silver outperformed Gold this year
Meanwhile, silver prices are edging lower ahead of today’s data. However, silver is still set for its largest monthly gain since July 2020 and trades over 30% higher so far in 2024, reaching a 12-year high.
While Gold prices have been driven by central bank purchasing and a flight to safety, Silver’s strong performance this year has been driven by industrial demand, as the metal is used in heavy industry and technology.
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