Gold inches closer to record high amid rate cut speculation

Gold edges nearer all-time peak as traders weigh Fed rate outlook.

Gold inches closer to record high amid rate cut speculation

Gold advanced higher overnight, edging closer to its record high as traders bought into the yellow metal ahead of key U.S. inflation data and interest rate cues from the Federal Reserve.

Spot gold (XAU/USD) was trading at $2,198.11 per ounce by 07:00 GMT on Thursday morning, just $24 shy of the all-time high. Bullion prices recovered a bulk of their losses this week as expectations that the Fed could cut interest rates as soon as June remained in play.

However, strength in the U.S. dollar, which sat near a one-month high, kept gold prices just off record levels. The overarching theme continues to be whether the Fed will or won't cut rates in the coming months.

Governor Christopher Waller warned that the central bank was in no hurry to begin cutting rates, citing sticky inflation and resilience in the U.S. economy. In contrast, Atlanta Fed President Raphael Bostic reiterated his forecast for one rate cut this year on Monday, stating the central bank can afford patience as long as the economy holds up.

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All eyes are now squarely on the Personal Consumption Expenditures (PCE) price index data - the Fed's preferred inflation gauge - which is due on Friday. Any signs of cooling inflation are likely to trigger strong gains in metal markets, given that they increase the chances of early interest rate cuts.

Alongside the PCE data, separate addresses from Fed Chair Jerome Powell and Federal Open Market Committee (FOMC) member Mary Daly are also scheduled for Friday. Any signals from the two on interest rate cuts will be closely watched, after other Fed officials struck a somewhat hawkish tone this week.

Higher interest rates for longer bode poorly for gold prices, given that they increase the opportunity cost of investing in bullion.

From a technical perspective, on the 4-hour chart, there seems to be a head and shoulders pattern emerging for gold, something to keep an eye on. However, if gold does break record highs, this pattern will be invalidated. A close below $2,145 could trigger a move lower, with the first support level seen around $2,080. To the upside, a meaningful break above $2,220 would cement a next leg higher.

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