Gold prices have rebounded following a bout of heavy selling as investors cashed in on gold’s bumper rally driven by a weaker dollar.
Gold bugs will be encouraged to see such a swift correction, which was quickly bought into, preventing any major downside in the precious metal.
“Gold has just rebounded from around $3,717/oz after a healthy correction, following a strong rally that pushed prices toward a new high near $3,790/oz,” explained Linh Tran, Market Analyst at XS.com.
“This pullback mainly reflects profit-taking after the extended uptrend and growing investor caution as the balance of U.S. macro data this week tilted toward “moderately positive”: New Home Sales came in at 800K (well above the 650K forecast and higher than the previous 664K), while Q2 GDP was revised up to 3.8%, indicating stronger-than-expected growth. These figures helped strengthen the USD and cooled safe-haven flows, creating near-term resistance for gold, even though Treasury yields only edged up slightly and the geopolitical backdrop remains complex.”
Tran continued to outline that US economic data and PCE holds the key to the next phase of the gold price movement.
“The next focal point is Core PCE—the Fed’s preferred inflation gauge. Inflation alone can exert opposing forces on gold. If PCE eases further, expectations of monetary easing would be reinforced, real yields would trend lower, and in principle this would be supportive for gold. Conversely, if inflation cools while growth remains solid, capital may rotate toward risk assets (equities, credit), reducing safe-haven demand in the short term and putting deeper corrective pressure on gold.
“Should PCE surprise on the upside, a hawkish repricing could push USD and real yields higher, weighing on gold. However, ongoing geopolitical uncertainty and strategic buying interest could limit the downside.”