Today’s report revealed little relief from rising inflation, which continues at a record pace. The Federal Reserve’s preferred inflation report, the Personal Consumption Expenditure Price Index, was released today. Inflation, as seen by PCE, was 6.3% year-over-year in May, on par with April’s inflation pressure.
The PCE index gained 0.6% in May, following a gain of 0.2% in April. However, the core PCE index posted its lowest increase since November 2021. The report indicated that core PCE fell to 4.7% year over year, a slight decline from April’s reading of 4.9%.
An initial knee-jerk reaction took gold from $1803 at 8:30 AM EDT to $1825 in the next 15 minutes. The most active August 2022 futures contract traded at its intraday high of $1826.80 at 9:00 AM. The initial reaction to today’s inflation report created bullish market sentiment for gold as the report was perceived to reduce the size of the next rate hike when the FOMC convenes for its July meeting.
This optimism was short-lived as gold futures fell to $1805.10 an hour and forty-five minutes later. As of 5:05 PM, EDT gold futures are currently settled at $1808 after factoring in today’s price drop of $9.50, or 0.52%.
Today’s price decline led to gold breaking below a support trendline created by a series of higher lows. The first low gold used to create this trendline occurred on May 16 when it traded low at $1785.30. The second low is based on the June 14 low of $1806.60. The first level of potential support for gold to continue under pressure occurs at $1798, based on the low that occurred on May 13.
However, our long-term studies using weekly candlesticks indicate that today’s price drop falls within parameters above the current support trendline, which is formed by two higher lows. The first low used was $1678 which occurred in mid-April 2021. The second low used occurred in the second week of May at $1785. Today’s low was above that trendline.
Today’s price drop leads to gold closing for the day, week, this month and this quarter. Today’s release of the PCE price index will be a key data point used to determine whether the Federal Reserve will continue to raise rates by 75 basis points at this month’s FOMC meeting.
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