Gold prices fell by about 0.15%, which was caused by the strengthening of the US currency. Investors are also cautious ahead of the release of US inflation data, which could clarify the timing of the Fed's monetary policy easing.
The US Dollar Currency Index (DXY), which tracks the dynamics of the dollar against six currencies (euro, swiss franc, yen, canadian dollar, pound sterling and swedish krona) rose by 0.12% to 104.84.
The market is now waiting for the release of the U.S. core personal consumption expenditures (PCE) price index data, the Fed's preferred measure for inflation. Economists expect the core PCE to rise 0.3% m/m in April after similar increases in March and February. On an annualized basis, core PCE is expected to rise 2.8%, the same as in March. If this data coincides with forecasts, it may prompt markets to increase the chances of a September Fed rate cut. According to the CME FedWatch Tool, markets see a 12.3% probability of a 25 basis point rate cut at the Fed meeting in July, a 50.4% probability of a rate cut in September, and a 63.3% probability of monetary policy easing in November, with traders pricing in 34 basis points of cuts this year compared with 150 basis points of easing priced in at the start of 2024. While bullion is considered an inflation hedge, higher rates increase the opportunity cost of holding the non-yielding asset.
"Stronger than expected PCE growth may put pressure on gold, but it may take much more to reverse the broader upward trend, with buyers likely to step in to defend the $2,300 level," said IG market strategist Yeap Jun Rong.