Inflation as seen through the PCE price index remains at elevated levels

Today’s report revealed that there is only marginal relief from rising inflation which continues at a record pace. The Federal Reserve’s preferred inflation report, the Personal Consumption Expenditures price index was released today. Inflation as seen through the PCE came in at 6.3% year-on-year for May equaling inflationary pressures for April.

In May the PCE index gained 0.6%, following a gain of 0.2% in April. However, the core PCE index had its lowest increase since November 2021. The report indicated that core PCE dropped to 4.7% a year-on-year in May, a slight decline from April’s reading of 4.9%.

The initial knee-jerk reaction took gold from $1803 at 8:30 AM EDT to $1825 over the next 15 minutes. The most active August 2022 futures contract traded to its intraday high of $1826.80 at 9:00 AM. The initial reaction to today’s inflation report created bullish market sentiment for gold as it was perceived that this report would decrease the size of the next rate hike when the FOMC convenes for its July meeting.

This optimism was short-lived at best because one hour and forty-five minutes later gold futures declined to $1805.10. As of 5:05 PM, EDT gold futures are currently fixed at $1808 after factoring in today’s price decline of $9.50 or 0.52%.

Today’s price decline resulted in gold breaking below the support trendline created from a series of higher lows. The first low used to create this trendline occurred on May 16 when gold traded to a low of $1785.30. The second low used was based upon a low of $1806.60 that occurred on June 14. The first level of potential support should gold continue under pressure occurs at $1798 which is based upon the low that occurred on May 13.

However, our long-term studies using weekly candlesticks indicate that today’s price decline falls within the parameters above the current support trendline which was also created from two higher lows. The first low used is at $1678 which occurred in mid-April 2021. The second low that was used occurred during the second week of May at $1785. Today’s low remained above that trendline.

Today’s price decline will result in gold closing lower on the day, the week, this month, and this quarter. The release of today’s PCE price index will most certainly be a key data point the Federal Reserve will use to determine if they will continue to raise rates by 75 basis points at this month’s FOMC meeting.

Wishing you as always good trading,