Gold Price Forecast: Hotter-Than-Expected PCE Inflation Pressures Gold, Will Warsh's Jackson Hole Speech Spark a New Rally?

From a fundamental perspective, the latest U.S. PCE data for July was overall strong, indicating that inflationary pressure remains sticky.

The U.S. July PCE price index rose 0.2% month-over-month, higher than the market expectation of 0.1%; it rose 3.7% year-over-year, also higher than the expected 3.6%, remaining flat with June. Core PCE, which excludes food and energy, rose approximately 0.246% month-over-month unrounded, close to 0.3%, while remaining around 3.3% year-over-year. The year-over-year PCE has been above the Federal Reserve's 2% target for 65 consecutive months, and headline inflation in July came in higher than expected again, implying that it remains difficult for the Fed to declare that inflation is back under control.

Following the data release, the market significantly increased its bets on a September rate hike. According to the CME FedWatch Tool, the probability of a Fed rate hike in September rose from about 36% before the data release to around 40%, while the probability of keeping interest rates unchanged stood at approximately 60%.

However, gold did not continue its decline today, hovering around $4,600. Although the PCE reading was on the higher side, the data was not enough to convince the market that the Fed will definitely raise rates in September. Currently, market pricing for a September rate hike remains below 50%, while the U.S. labor market has shown a noticeable cooling recently, forcing the Fed to balance both inflation and economic growth risks.

Looking ahead, the most critical factor determining short-term gold price movements lies in Warsh's speech at Jackson Hole this Friday. For investors, attention should be focused on how Warsh evaluates the latest PCE data and whether he provides further clarity on the policy direction for September. The minutes of the Fed's July meeting showed that some officials were concerned that if rate hikes were delayed, larger tightening measures might be needed in the future. Boston Fed President Collins also stated this week that if upcoming data fails to prove inflation is continuing to decline, the Fed may need to raise interest rates soon.

If Warsh emphasizes that PCE remains above the target and hints at the necessity of a rate hike in September, U.S. Treasury yields and the U.S. dollar could rise further, putting noticeable pressure on gold. Conversely, if Warsh focuses more on employment and economic growth risks while avoiding explicit support for a September rate hike, the current rate hike probability of around 40% may decline again, and gold could potentially mount another charge toward $4,700.

Gold Price Daily Chart, Source: TradingView

Looking at the daily chart, gold prices generally remain in a high-level consolidation phase following a strong rally. Gold rose over 5% last week and hit a more than three-month high this week. However, it pulled back noticeably after the release of U.S. PCE data, indicating that strong profit-taking and technical pressure have built up near $4,700.

Currently, $4,600 has become the most critical short-term watershed for bulls and bears. Yesterday, after falling near $4,600, gold attracted buying interest again and rebounded to around $4,619 today, suggesting solid buying support at this level for now.

To the upside, the primary resistance level to watch is $4,700. If gold can break and hold above this level, it will open up upside room toward $4,800, with potential to further test the $4,890-$4,900 range.

To the downside, the primary support level to watch is around $4,530. If this level fails to hold, gold may further test the support at $4,450, or even decline toward the 20-day moving average.

This content was translated using AI and reviewed for clarity. It is for informational purposes only.