Gold rises 2% as falling oil and soft PCE expectations lift appeal

Gold rose 2% to $4,623.80 an ounce on May 26, as falling crude prices and soft inflation expectations supported lower yields.

"Gold is benefiting from a double tailwind of easing oil prices and anticipation of a soft core PCE reading," Kelvin Wong, senior market analyst at OANDA, said. "If the data confirms disinflation, the case for lower rates strengthens, removing a key headwind for bullion."

Brent crude fell 1.8% to $96.20 a barrel, extending a decline from last week's highs above $100 as US-Iran tensions eased. Lower energy costs reduce inflation expectations, which in turn supports expectations that the Federal Reserve may cut rates later this year. The US 10-year real yield slipped 6 basis points to 1.82%, reducing the opportunity cost of holding non-yielding gold.

The shift in market pricing was notable. Fed funds futures now imply a 62% chance of a rate cut by September, up from 48% a week ago, according to CME Group data. That repricing followed a string of softer economic readings and comments from Fed officials acknowledging progress on inflation. The core PCE price index, due May 29, is expected to rise 0.2% month-over-month, the smallest gain this year.

COMEX gold inventories fell 3.2% to 18.4 million ounces in the week through May 23, exchange data shows, the lowest since February. Physical demand from central banks remained supportive, with the People's Bank of China adding 12 tonnes to its reserves in April, according to official data. Global central bank gold purchases totaled 93 tonnes in the first quarter, the World Gold Council reported, as emerging-market central banks continued diversifying reserves away from the US dollar.

Silver tracked gold's gains, rising 2.3% to $78.12 an ounce. Platinum added 1.1% to $1,972.40, while palladium rose 0.8% to $1,395.60. The broader precious metals complex benefited from the same macro tailwind of lower real yields and a weaker dollar, which fell 0.3% against a basket of major currencies on the day.

Gold at $4,623 is 1.4% below the all-time high of $4,690 set on April 22. A break above that level would target the $4,750 area, while support sits at $4,500, the 50-day moving average. The PCE release on May 29 will set the next direction for prices. A print at or below the 0.2% consensus could push gold toward a retest of the record high, while a hotter reading may trigger a pullback toward support.

This article is for informational purposes only and does not constitute investment advice.