Market Analysis: XAU/USD eyeing record highs ahead of US PCE data

Gold traders seem to be testing the waters in an attempt to find the appetite for a new all-time high. The daily highs from this week have come to rest just below $2,529 as buyers haven’t quite found the drive to break last week’s high at $2,531. The momentum seems to be there, with the bias still firmly higher and an RSI that still has room to go before showing signs of being overbought, but traders seem to be feeling cautious heading into the month-end, especially considering the PCE data which will be released later today.

Great emphasis has been placed on economic data over the past twelve months, with inflation and jobs data being the key focus. The present is no different, as traders are still trying to figure out what the Federal Reserve’s move will be at its meeting in September. The data released today is unlikely to avoid a rate cut, but it can shape the expectations regarding the path of monetary policy over the coming months. First and foremost, it could impact the split between a 25 bps cut and a 50 bps cut, currently at 67.5% and 32.5% respectively. Further than that, it could see a change in the expected easing in 2024, currently bang on 100 bps of cuts in the next three months.

Market-implied probabilities from the Federal Reserve

Source: refinitiv

A stronger PCE reading could see some rebalancing flows in the US dollar, potentially weighing on gold heading into the weekend. Next week will also be key for sentiment as the August US jobs data will be released on Friday. Considering the July jobs data was one of the reasons for the market meltdown earlier this month, traders are likely going to be paying close attention to this month’s data. The unemployment rate is expected to moderate slightly after the unexpected rise last month, seen dropping from 4.3% to 4.2%. Meanwhile, non-farm payrolls are seen coming in higher than last month at 163 thousand versus 114 thousand.

If sentiment turns to a more dovish Fed following the latest data, then we could see gold picking up further bids and breaking to a new high. For now, the focus remains on breaking and holding above $2,530 after the US PCE data release and heading into the weekend with a positive bias, which could encourage more buying appetite next week ahead of the jobs data.

Alternatively, a pullback should be pretty contained $2,470. If that’s not the case then we could see some further downside pressure and a dip below $2,440.

Gold (XAU/USD) daily chart

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