US inflation data, due at 1:30 PM BST, is unlikely to alter the Federal Reserve's long-term outlook, but will offer insights into the impact of tariffs.
Gold is seeing a sharp decline in value, a move that is notable given the concurrent weakness in the US dollar and rising expectations for Fed rate cuts. The precious metal's slump is primarily attributed to positive developments in trade negotiations between the US, China, and other global economies. Nevertheless, today's data release is significant for long-term interest rate expectations, even though in the short term, US policymakers will likely continue to prioritize labour market statistics and the Consumer Price Index (CPI), which provides a more immediate gauge of consumer price dynamics.
Today's report is expected to show headline PCE inflation rising to 2.3% year-on-year from 2.1% previously, with a modest monthly increase of just 0.1% month-on-month. Core PCE inflation, meanwhile, is forecast to tick up to 2.6% year-on-year from 2.5%, also with a minimal monthly gain of 0.1%. The release will also include figures on personal income and spending. Core PCE data will be particularly crucial for market participants, as it will shed light on the impact of Donald Trump's tariffs on May inflation figures.
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A recent uptick in services prices justifies a rebound in Core PCE, and will also show the impact of trade tariffs on consumer prices. Source: Bloomberg Finance LP, XTB
What's Next for Gold?
Gold is undergoing a significant correction during today's trading session, seemingly breaking permanently below the 3300 level and both its 25- and 50-period moving averages. Should the inflation data come in stronger than expected, it could temper the potential for a September rate cut, thereby prolonging the gold correction. However, if inflation fails to accelerate, a rebound above the 3300 mark could be seen as early as today, paving the way for faster rate cuts from the Fed.
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