Gold prices stabilized around $4,000 an ounce after dropping below that level earlier in the week, influenced by recent US economic data. The US personal consumption expenditures price index, a key inflation gauge, came in below monthly expectations, leading traders to slightly scale back their forecasts for aggressive interest rate increases.
While the PCE index undershot monthly expectations, other economic indicators painted a stronger picture. Income and spending measures were stronger than anticipated, and first-quarter GDP growth was revised up to 2.1% against a 1.6% expectation. Additionally, weekly jobless claims fell to 215,000, lower than the 225,000 anticipated, suggesting a solid economy and tight labor market.
Despite the monthly PCE data, the core PCE rose to 3.4% over the past year, in line with expectations and a tick above the prior 3.3%. This sticky inflation, coupled with the strong economic data, doesn't provide the Federal Reserve a reason to ease monetary policy. In fact, it strengthens the case for a rate hike, which is almost 90% priced in by year-end, pushing the short end of the Treasury curve to its most hawkish level since February.
Analysts like BNY's Geoff Yu noted that gold's fall below $4,000/ounce since mid-March is due to repricing in global interest rates, including expectations for the Federal Reserve, Bank of England, and European Central Bank. The fading "debasement" trade narrative, where gold was seen as a hedge against profligate government spending, is also contributing to the selloff as markets exert strong fiscal discipline.
The approximately $4,000 level has become a crucial short-term pivot for gold. A sustained recovery above $4,015 could lead to a move towards $4,025-$4,050, with $4,075 as the next significant upside target. However, the overall trend remains cautious as geopolitical risk premia fade and attention shifts back to monetary policy and economic fundamentals, making gold primarily influenced by inflation expectations, Treasury yields, and dollar positioning.
