Gold bounces back on US Dollar correction ahead of Fed’s preferred inflation gauge

• Gold price attracts bids below $1,860.00 after a mild correction in the US Dollar.
• The US economy remains resilient due to falling inflation, stable labor demand, and robust consumer spending.
• Fed Kashkari said that current interest rates are not sufficiently restrictive to bring down inflation to 2%.

Gold price (XAU/USD) bounced back after a four-day losing spell as the US Dollar struggled to extend its recovery on Friday, ahead of the US Core Personal Consumption Expenditure (PCE) Price Index data for August. Still, the upward move in the precious metal is likely to be short-lived as Federal Reserve (Fed) policymakers look set for one more interest rate increase by the year-end amid a resilient US economy and persistent inflation pressures.

The US economy has been performing well on the grounds of inflation, labor market, and consumer spending but factory activity is still a concern for the authorities amid a poor demand outlook. Investors will keenly focus on the Manufacturing PMI report for September, which will be published on Monday, for further clues about the current health of the factory sector. Markets expect the PMI data to signal that factory activity contracted for the 11th consecutive month.

Daily Digest Market Movers: Gold price finds support as US Dollar corrects

• Gold price attempts a recovery after defending the crucial support of $1,860.00 as the US Dollar faces profit-booking ahead of the US Core PCE Price Index data for August, which will be published at 12:30 GMT.
• Investors expect core PCE to grow at a steady pace of 0.2%, while the annual reading is seen softening to 3.9% from July’s 4.2%.
• A softer-than-anticipated reading for the Fed’s preferred inflation gauge may increase traders’ bets for interest rates to stay unchanged for the remainder of the year.
• Recently, the odds for interest rates remaining steady at 5.25%-5.50% were trimmed as Fed policymakers delivered hawkish remarks and Durable Goods Orders surprisingly expanded in August.
• On Wednesday, Minneapolis Federal Reserve Bank President Neel Kashkari said that he is unsure whether the central bank has hiked enough to bring down core inflation to 2%.
• Meanwhile, Richmond Fed Bank President Thomas Barkin advocated for a ‘wait and watch’ approach as a probable government shutdown could complicate the Fed’s ability to assess the state of the economy due to the possible interruption of economic data releases.
• US Durable Goods Orders for August unexpectedly rose by 0.2% against expectations of a 0.5% decline. In July, Orders contracted by a sharp 5.6%. The US Manufacturing PMI has been contracting for the past 10 months. Still, upbeat order data for equipment has improved the sector’s outlook.
• As per the CME Group Fedwatch tool, chances that interest rates will remain steady at 5.25%-5.50% at the November monetary policy meeting have recovered to 83% from 77% on Thursday. Traders see a 66% chance for interest rates remaining unchanged for the remainder of the year, up from 58% on Thursday.
• While the recovery in energy prices could have a temporary impact on US inflation, rising house rentals could keep inflation sticky. Fed’s Barkin said on Thursday that housing will be key to tracking the progress towards taming inflation in the next few quarters, with risks that rising home prices could also boost market rents.
• The US Dollar Index (DXY) faces selling pressure near a fresh 10-month high at 106.80 as the risk-aversion theme loses momentum.  Still, the odds for a recovery are high as the US economy appears to be handling higher interest rates while other economies are struggling.
• The US economy has been showing a resilient labor market, household demand, and decreasing inflation. Still, its manufacturing sector has been contracting consistently for the past 10 months, according to PMI data.
• After US PCE Price Index data, investors will shift their focus to the Manufacturing PMI report for September, to be released by the Institute of Supply Management (ISM) on Monday.
• The US Manufacturing PMI is seen improving to 47.8 from August’s reading of 47.6 but will remain below the 50.0 threshold which signals a contraction in activity. This would be the 11th month of contraction in a row.

Technical Analysis: Gold price attempts recovery near $1,860

Gold price finds an interim support after printing a fresh six-month low below $1,860.00. The four-day losing spell in Gold price appears to have halted, but for a sustained recovery the asset has to recapture the crucial resistance at $1,900.00. The broader bias remains bearish as the 20-day and 200-day Exponential Moving Averages (EMAs) have delivered a bear cross. A bounce-back move in the precious metal is also backed by oversold momentum oscillators.