Gold capitalizes on Middle East crisis, US core PCE inflation remains in spotlight

Gold price (XAU/USD) discovers strong buying interest in Wednesday’s early New York session despite Federal Reserve (Fed) policymakers are not interested in lowering interest rates anytime in the first half of 2024. Higher interest rates are negative for non-yielding Gold as they increase the opportunity cost of holding the precious metal.

For fresh cues about the timing for rate cuts, investors will focus on the United States core Personal Consumption Expenditure price index (PCE) data for January, which will be published on Thursday. Market expectations for rate cuts will be trimmed if the underlying inflation data turns out stickier than expectations. Such an outcome could trigger a downside move in Gold price. 

On the geopolitical front, tensions between Israel and Hamas intensified as both nations have downplayed expectations of a ceasefire. Meanwhile, Palestine-backed Hamas said that it fired a number of rockets toward northern Israel.

A country’s Gross Domestic Product (GDP) measures the rate of growth of its economy over a given period of time, usually a quarter. The most reliable figures are those that compare GDP to the previous quarter e.g Q2 of 2023 vs Q1 of 2023, or to the same period in the previous year, e.g Q2 of 2023 vs Q2 of 2022.
Annualized quarterly GDP figures extrapolate the growth rate of the quarter as if it were constant for the rest of the year. These can be misleading, however, if temporary shocks impact growth in one quarter but are unlikely to last all year – such as happened in the first quarter of 2020 at the outbreak of the covid pandemic, when growth plummeted.

Downbeat US Durable Goods Orders data for January released on Tuesday failed to catalyze gains in Gold price. Fresh orders for Durable Goods were down by 6.1%, while investors projected a decline of 4.5%. Weak demand for durable goods indicates a poor outlook for consumer spending.

Daily Digest Market Movers: Gold price bounces back while US Dollar remains firm

  • Gold price rebounds above $2,030 as geopolitical tensions escalate.
  • Investors focus majorly on the United States core PCE price index data for January, which will be published on Thursday.
  • The underlying inflation data will provide cues about when the Federal Reserve could consider a dovish shift in its monetary policy stance.
  • Expectations are for the core PCE price index to have grown by 0.4% on a month-on-month basis in January against a 0.2% increase in December. Annually, the underlying inflation data is forecast to have decelerated to 2.8% from 2.9% in December. 
  • Sticky price pressures would allow Fed policymakers to argue in favor of keeping interest rates restrictive in the first half of 2024.
  • Most Fed policymakers want to see more evidence to confirm that inflation will return sustainably to the 2% target before cutting rates.
  • Currently, market expectations for rate cuts are considerably aligned with Fed policymakers who see no need to rush to reduce interest rates.
  • The CME FedWatch tool shows that interest rates will remain unchanged in the range of 5.25%-5.50% in the March and May policy meetings. For the June meeting, traders see a 50% chance for a rate cut by 25 basis points (bps).
  • On Tuesday, Federal Reserve Governor Michelle Bowman also supported keeping interest rates steady as early rate cuts could stall progress in inflation easing towards 2% or resurge price pressures.
  • Michelle Bowman added that strong inflation readings in January and a tight labor market suggest slowing progress in inflation declining to 2%.
  • Meanwhile, the US Dollar rally has paused for a while as the second estimate of Q4 Gross Domestic Product (GDP) indicates that the economy grew by 3.2%, against expectations of 3.3%.
  • The US Dollar Index (DXY), which gauges the Greenback’s value against six major currencies, soars above 104.00 as uncertainty over US economic data has improved the appeal for safe-haven assets.

Technical Analysis: Gold price rebounds toward $2,040

A higher GDP result is generally positive for a nation’s currency as it reflects a growing economy, which is more likely to produce goods and services that can be exported, as well as attracting higher foreign investment. By the same token, when GDP falls it is usually negative for the currency.
When an economy grows people tend to spend more, which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation with the side effect of attracting more capital inflows from global investors, thus helping the local currency appreciate.

Gold price rises toward the downward-sloping border of the Symmetrical Triangle pattern, which is plotted from the December 28 high at $2,088. The upward-sloping border of the chart pattern is placed from the December 13 low at $1,973.

When an economy grows and GDP is rising, people tend to spend more which leads to inflation. The country’s central bank then has to put up interest rates to combat the inflation. Higher interest rates are negative for Gold because they increase the opportunity-cost of holding Gold versus placing the money in a cash deposit account. Therefore, a higher GDP growth rate is usually a bearish factor for Gold price.


The 14-period Relative Strength Index (RSI) oscillates in the 40.00-60.00 region, which indicates indecisiveness among investors.


The triangle could break out in either direction. However, the odds marginally favor a move in the direction of the trend before the formation of the triangle – in this case, up. A decisive break above or below the triangle boundary lines would indicate a breakout is underway. 


  • Gold price rebounds sharply even though Fed policymakers maintain a hawkish narrative.
  • The US Dollar remains firm as market expectations for early Fed rate cuts ease.
  • Investors await the US core PCE inflation data for fresh guidance.

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