Gold Price Forecast: XAU/USD bounces off daily low on softer US PCE data, ahead of Powell

• Gold stalls the intraday decline following the release of softer US PCE data.
• The USD refreshes the weekly low and offers some support to the commodity.
• Elevated US bond yields to cap the upside ahead of Fed Chair Powell’s speech.

Gold continues losing ground through the early North American session, albeit rebounds from the daily low in reaction to softer US economic data. The XAU/USD is currently trading just above the $1,750 level, still down nearly 0.50% for the day.

The US dollar turns lower for the second straight day on Friday and drops to a fresh weekly low, which, in turn, offers support to the dollar-denominated gold. The USD witnessed some selling in the last hour after the US Bureau of Economic Analysis reported that the US Personal Consumption Expenditures (PCE) Price Index declined to 6.3% in July from 6.8% in June.

Excluding volatile food and energy prices, the Core PCE Price Index, which is Fed's preferred inflation gauge, eased further from the 40-year high and fell to 4.6%, missing the 4.7% print estimated. The data points to signs of easing inflation in the US and dampens the prospects for more aggressive Fed rate hikes, which, in turn, exert pressure on the greenback.

The US central bank, however, is still expected to hike interest rates by at least 50 bps at the next policy meeting in September. The bets were reaffirmed by hawkish comments by Atlanta Fed President Raphael Bostic and Philadelphia Fed President Patrick Harker, stressing the need for further policy tightening to get inflation under control.

This remains supportive of elevated US Treasury bond yields. In fact, the yield on the benchmark 10-year US government bond manages to hold above the 3.0% threshold, which might keep a lid on any meaningful upside for the non-yielding gold. Traders might also refrain from placing aggressive bets ahead of Fed Chair Jerome Powell's highly-anticipated speech.

Technical levels to watch