Gold Dips as Traders Digest April PCE Price Index Data

Gold futures for the August 2024 contract, now the most actively traded, experienced a double-digit decline on the last trading day of May. In New York, the August contract closed at $2,345.60 per troy ounce, down $20.70 or 0.81%. This daily drop contributed to a weekly decline of $11.10 or 0.47%. However, gold still managed to eke out a monthly gain of $21.10 or 0.91% in May.

Market participants are now interpreting the latest inflation data from the April Personal Consumption Expenditures (PCE) price index report released by the Bureau of Economic Analysis (BEA). The report revealed a $65.3 billion increase in personal income, a $40.2 billion rise in disposable personal income (DPI), and a $39.1 billion or 0.2% increase in personal consumption expenditures (PCE).

According to the BEA, "The PCE price index increased 0.3 percent. Excluding food and energy, the PCE price index increased 0.2 percent. Real DPI decreased 0.1 percent in April, and real PCE decreased 0.1 percent; goods decreased 0.4 percent, and services increased 0.1 percent."

The report confirmed earlier estimates by MarketWatch and Reuters, predicting that inflation in April would increase by 2.7% year-over-year, still above the Federal Reserve's 2% target. However, this is the first month in 2024 that inflationary pressures have remained steady rather than accelerating from the previous month.

The latest data has increased the probability of a rate cut by the September Federal Open Market Committee (FOMC) meeting. According to the CME's FedWatch tool, the probability of a rate cut by September has risen from 50.5% yesterday to 53.2% today. The likelihood of a 0.25% rate cut increased from 45.1% to 46.6%, while the chances of a 0.5% cut rose from 5.4% to 6.6%.

On a technical basis the August contract of gold futures did close below its 50-day simple moving average. Market technicians will watch closely to see if there is a deeper decline below this critical level or if gold pricing manages to move back above.

Lower interest rates tend to benefit gold prices in the long run, as gold does not yield interest, and higher rates typically weigh on the precious metal's appeal. Despite the recent dip in gold prices, the metal managed to close out May with a nearly 1% gain, benefiting from the prospect of easier monetary policy ahead.

Wishing you as always good trading,