Gold prices remained steady on Friday, just below a new record high of $2,686, as investors consolidated gains ahead of key U.S. inflation data.
The upcoming release of the U.S. personal consumption expenditures (PCE) price index is expected to influence the next directional move for gold, with traders anticipating the latest signals from the Federal Reserve.
Despite recent dovish comments from Federal Reserve officials and mixed U.S. economic data, the likelihood of a 50 basis point interest rate cut in November has diminished. According to the CME Group’s FedWatch Tool, the odds for such a cut now stand at 50%, down from 62% in the previous session.
This shift has bolstered the U.S. dollar's recovery, cooling the record-breaking rally in gold prices.
However, dovish remarks from Fed Governor Lisa Cook, along with fresh stimulus measures from China, have kept the downside for gold prices in check.
The next major factor for gold will be the release of the Fed's preferred inflation gauge, the PCE price index, with market participants expecting a stable reading of 0.2% month-on-month in August, while the annual rate is expected to come in at 2.7%, compared to July’s 2.6%.
A stronger-than-expected inflation reading could lower the odds of a significant rate cut in November, strengthening the U.S. dollar and potentially triggering a correction in gold prices. Conversely, weaker inflation data could revive expectations for a larger Fed rate cut, pushing gold toward new record highs.
