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• The XAU/USD currency cross dropped to the $2,646 mark after September inflation data suggested progress toward the Fed’s 2% target.
• The US 10-year Treasury yield fell five basis points on Friday, while the US Dollar Index dipped by around 0.16% to the 100.41 level.
• Geopolitical risks rose as Israel struck Lebanon, but gold failed to gain momentum as traders cashed in profits.

Gold fell to a three-day low beneath the $2,650 level after the US Bureau of Economic Analysis (BEA) revealed that September inflation continued to evolve toward the Federal Reserve’s goal. Even though this warranted further easing by the Fed, the yellow metal failed to gain traction as analysts speculated that traders were booking profits. The XAU/USD cross was seen trading at around $2,657 on Friday, down by almost 0.50%.

The BEA revealed that the Fed’s preferred inflation gauge, the Personal Consumption Expenditures Price Index (PCE), was slightly closer to the central bank’s 2% target, according to August’s data. Meanwhile, core PCE increased by a tenth of a percentage point compared to July’s data.

Following the data, the US 10-year Treasury note yield fell five basis points to around 3.749%. Consequently, the greenback dropped as the US Dollar Index (DXY) slumped approximately 0.16% to the 100.41 mark.

After the data, the odds of 50 basis points (bps) of easing at the November meeting increased, according to the CME FedWatch Tool. Given the market’s reaction, it was expected that gold prices would be set for another record high. Nevertheless, the XAU/USD cross plummeted below the Sept. 26 daily low of $2,654, which could potentially open the door for a deeper pullback.

Other data revealed that the University of Michigan Consumer Sentiment for September improved in its final reading. Aside from this, an escalation in the Middle East conflict between Israel and Hezbollah has been looming. Israel claimed that it hit Hezbollah’s main headquarters in southern Beirut on Friday. An Israeli official said the government hopes not to proceed with a ground invasion of Lebanon but would not rule it out.

Reuters revealed that Gold ETFs saw modest net inflows last week and have yet to fully contribute to gold’s rally, though analysts expect more activity from ETFs in coming months.

Market Movers: Gold Price Tumbled as US Inflation Approached 2% Goal

• August US PCE came in at 2.2% year-over-year, down from 2.5% a month earlier and slightly lower than the consensus estimate.
• Core PCE increased modestly as expected from 2.6% to 2.7% year-over-year for the same period.
• The University of Michigan (UoM) Consumer Sentiment for September improved from 69.0 to 70.1. Inflation expectations for one year dipped from 2.8% to 2.7%, while five-year expectations rose from 3% to 3.1%.
• Market participants fully priced in at least a 25 bps rate cut by the Fed. However, the odds of a 50 bps cut have decreased to 54.7%, down from a 60% chance a few days days ago, according to the CME FedWatch Tool.

XAU/USD Technical Analysis: Gold Price Slumped and Hovered Around $2,650

The price of gold hit an all-time high of $2,685, and it has seemingly remained upwardly-biased. However, buyers were unable to hit new record highs in recent trading, which could open the door for a pullback. Short-term momentum favored sellers as the Relative Strength Index (RSI) exited from overbought territory, as it appeared to be aiming for the 60 mark.

If the XAU/USD currency cross drops below the $2,650 mark in the coming days, look for a test of the Sept. 18 daily high at the $2,600 level. The following key support levels to test would be the Sept. 18 low of $2,546, followed by the 50-day Simple Moving Average (SMA) at $2,488.

Conversely, If the XAU/USD cross were to extend its rally past the current year-to-date peak of $2,685, the next resistance would be the $2,700 mark. Up next would be the $2,750 level, followed by $2,800.

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