Gold Prices Reversal: Soft PCE Inflation Data Fades as US Dollar Bounces Back

The US PCE inflation data released on Wednesday showed softer-than-expected readings, which initially boosted gold prices. However, the initial reaction was short-lived as the US Dollar trimmed its losses and US Treasury yields resumed their advance.

Core PCE inflation rose 0.2% MoM in August, below the forecasted 0.3%, while headline PCE inflation climbed 0.3% MoM, also below expectations. On an annual basis, core and headline inflation held steady at 3.0% and 3.4%, respectively.

Despite softer inflation readings, stronger growth and employment figures overshadowed the data. The US economy expanded at an annualized rate of 2.2% in the second quarter, above the forecasted 1.5%. Meanwhile, ADP Employment Change rose by 90K in September, beating expectations.

New York Fed President John Williams' less hawkish remarks on Tuesday also contributed to traders scaling back expectations of a rate increase as soon as next month. The prospect of further tightening remains a key headwind for gold, leaving the metal on track to end September in negative territory.