Gold Holds Near Three-Month High Ahead of PCE Inflation Reading

Gold prices have retreated slightly but remain near their three-month high as investors await the US Personal Consumption Expenditures (PCE) inflation reading. The report, due on Wednesday at 8:30 am ET, will decide whether the recent rally has room to run.

The PCE index is expected to show a slight easing of headline inflation to 3.6% from 3.7% in June, while core PCE is forecast to slow to 3.2% from 3.3%. Barclays economist Pooja Sriram expects core prices to rise 0.2% from June, indicating that inflation may still be running too quickly for the Federal Reserve to declare victory.

A softer reading would likely pull real yields lower and weaken the dollar, reducing the opportunity cost of holding gold. Conversely, a hotter print would revive concerns about inflation and potentially lead to an interest rate hike in September.

Futures markets currently assign a 62% probability to the Fed keeping rates unchanged in September. Gold's recent breakout has been supported by a softer dollar and renewed demand for hard assets.