The Gold Spot Prices (XAUUSD) are currently trading flat on Friday as the strengthening US dollar continues to weigh on the non-yielding bullion ahead of the US PCE data, the Fed’s preferred indicator of inflation, later today. The US dollar held resilient even after the release of some mixed economic data from the US on Thursday. The weaker-than-expected GDP growth rate figure of 1.1% for the first quarter was lower than the market’s expectation of 2% and declined by 1.5% overall from the fourth quarter reading of 2.6%.

However, the downside pressure on the greenback was swiftly muted by the market’s expectation that the PCE data would show that inflation remains elevated above the Fed’s 2% target. The greenback regained some of the overnight losses as investors’ expectations of a 25-basis point rate hike from the Fed in May remained high. The CME FedWatch Tool is reporting an 88% of the market is currently pricing in the rate hike, up from 83.9% a day ago and slightly lower from the 89.1% achieved a week ago.

Technical

The 4H chart shows that the precious yellow metal is currently trading within a narrow range as investors await the US PCE data later today ahead of the crucial week in the US next week. The appearance of the descending triangle could suggest that the technicals support a breakout to the downside.

A hotter-than-expected US PCE data could strengthen the bets on a further interest rate hike from the Fed, thus sending the US dollar higher. Therefore, should the Fed’s preferred inflation gauge come in hotter-than-expected, the bears could look for a breakout below the $1974.42/ounce support level as a possible level of interest. A breakout below $1974.42/ounce would leave the $1955.73/ounce at the bears’ mercy.

However, should the PCE data weaken the greenback, then the bulls could look to push the non-yielding bullion price higher, with the 23.60% Fibonacci retracement level and the dynamic resistance of the descending triangle acting as immediate resistance. A sustained break above the 23.60% Fibonacci retracement level would leave the $2002.08/ounce and $2011.28/ounce resistance levels into play.

Summary

With the market firmly expecting hot PCE data later today, the fundamentals would align with the technicals for a break below if the report comes as expected. Thus, a trading opportunity could exist as the price action breaks below the $1974.42/ounce support level. However, failure to sustain a move below $1974.42/ounce would leave the $2002.08/ounce resistance level in play, with the 23.60% Fibonacci retracement level and the 50-EMA acting as significant barriers to the bulls’ run.

Sources: TradingView, Reuters, CNBC.

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