Gold Price Pauses Rally Despite Cooling US Inflation, Or Has It?

Summary:
• Gold sits at a vantage position with additional US interest cuts in the pipeline. But could gold price become a victim of its own success?

Gold price eased downward on Friday, with traders taming their appetite despite lower-than-expected US Personal Consumption Expenditure (PCE) figures. The precious metal has been on a hot streak this week and reached an all-time high price of $2,685 per ounce on Thursday. However, it was down by 0.1 percent at the time of this writing, taking a breather before a potential continuation.

Why I Expect Gold to Keep Soaring-But with a Caution

Gold sits in a vantage position as the US economy blows hot and cold. This has exerted downward pressure on the US dollar as it becomes likely that Federal Open Market Committee (FOMC) members could vote for another rate cut. The August US Core PCE Index came in at 0.1 percent, missing the consensus forecast rate of 0.2 percent.

Meanwhile, the annualised figure matched the forecast figure of 2.7 percent, easing some pressure on the dollar. Nonetheless, the monthly figure signals a declining rate of inflation in a job market flashing signs of exhaustion. This aligns with the Fed’s move to leave the door open for additional interest rate cuts as announced during the September 18 decision.

While gold price eased in the near-term, an increasingly dovish Fed could be interpreted as a sign of a weaker US economy. That could form the basis for an inclination toward safe haven gold in the coming week. Furthermore, the rising hostilities in the Middle East favour gold.

However, after breaking its all-time highs multiple times, gold price could have become too pricey. That could result in a correction in the coming days, but the mid-term outlook under the current macroeconomic environment signals more headroom.

Gold price forecast

The momentum on gold price signals control by the sellers if resistance stays at 2,663. That will likely establish the first support at 2,657. However, a stronger bearish momentum could breach that mark to test 2,650.

Alternatively, moving above 2,663 will signal the onset of bullish control. In that case, the first resistance could come at 2,672, but extended control by the buyers could break above that barrier and invalidate the downside narrative. Also the resulting momentum could strengthen gains to test 2,680.