No follow-through after Friday's upside gains, as traders wait for the PCE report

Market participants are shifting their focus to the US inflation report, which will come out later this week. These numbers will have an impact on the Federal Reserve’s interest rate cut timeline. On Thursday, the government will release the latest inflationary data vis-à-vis the Personal Consumption Expenditure (PCE) price index. Early forecasts are anticipating that inflation will rise, with a forecast predicting an increase of 0.4% month over month.

According to Jim Wyckoff, Senior analyst at Kitco Metals, “If the PCE data comes a little warmer then it will be bearish for the metals, but gold will maintain the $2,000 range. For it to push below that, economic data this week has to be surprisingly hot.”

Recent remarks from multiple Federal Reserve officials suggested that the Fed was in no hurry to cut rates. Last Thursday, Governor Christopher Waller said that he was in “no rush” to cut rates. He also said that “January’s figures may have been driven by one-time quirks — many companies raise prices at the start of the year — or they may suggest “inflation is stickier than we thought, we just don’t know yet.” 

A Fed official, Patrick Harker, president of the Federal Reserve Bank of Philadelphia, also expressed caution about cutting rates too soon.  Fed Vice Chair Philip Jefferson warned against cutting rates too deeply in response to the positive economic news.

As of 5:55 PM EST, gold futures basis the most active April contract is down $10.50 or 
-0.57% and fixed at $2038.90. The dollar was fractionally lower, down 0.10% taking the index to 103.75.

Thursday's PCE price index will play a critical role in the decisions that the Federal Reserve makes regarding the timing of its first-rate cut. Some forecasts are predicting extremely hot inflation numbers in the core PCE, the Fed’s preferred index because it strips out the volatility of food and energy costs. If this is the case, it will certainly be topic number one when the Fed convenes at their next FOMC meeting in March. 

Last week’s remarks by multiple Federal Reserve officials have made it clear that the Fed does not intend to cut rates too soon, this could be reinforced if Thursday’s PCE report comes in hotter than expected.

Wishing you as always good trading,