Gold (XAU/USD) is on the defensive heading into the weekend, pressured by a combination of mixed US data and improving global risk sentiment.

The precious metal is trading below $3,300, down nearly 2% on the day, as safe-haven flows continue to unwind.

Friday's core PCE inflation print showed a modest uptick in May, reinforcing the Fed's cautious stance and creating a murkier outlook for the timing of rate cuts. Meanwhile, the University of Michigan Consumer Sentiment Index ticked higher in June, while inflation expectations softened, pointing to stable consumer outlooks.
The release of the core Personal Consumption Expenditure (PCE) on Friday has placed additional pressure on the US Dollar but did little to boost Gold.

This important dataset measures the pace at which prices of goods and services are rising and is released on a monthly basis. It is the Federal Reserve's (Fed)preferred measure of inflation, which plays a significant role in setting expectations for interest rates.

The headline PCE inflation figures for May came in line with expectations. The monthly figure rose by 0.1%, unchanged from April, while the year-over-year rate increased to 2.3%, slightly above April's 2.2%, and in line with forecasts.
However, the core PCE data—which excludes volatile components such as food and energy—surprised to the upside. Both the monthly and annual figures came in hotter than expected. Core PCE rose 0.2% month-over-month, ahead of the 0.1% estimate, while the annual rate climbed to 2.7%, surpassing expectations for an unchanged reading from April's 2.6%.

In contrast, broader consumption data disappointed. Personal income fell by 0.4% in May, well below the expected 0.3% increase and a sharp reversal from April's 0.7% gain. Personal spending also declined by 0.1%, missing the consensus forecast for a 0.1% rise and down from the prior month's 0.2%.

As the Federal Reserve's preferred measure of inflation, the rise in core PCE complicates the policy outlook. President Donald Trump continues to pressure the Fed to cut interest rates to support growth, but such action typically fuels inflation already above the central bank's 2% target.

Still, with income and spending data showing clear signs of economic fatigue, the Fed may be forced to weigh inflation against the risk of a broader slowdown. For markets, this opens the door to a dovish shift in tone, potentially paving the way for a rate cut as early as July.

Moreover, President Trump is putting immense pressure on the Fed to cut rates to stimulate the economy.

A major concern for the Fed has been the impact of tariffs on inflation. A trade deal with China, which has resulted in a pause of higher reciprocal tariffs on Chinese imports until August 12, could alleviate some of the pressure that potential higher tariffs may have on the US economy. According to the CME FedWatch Tool, the probability of a 25-basis point (bps) rate cut in September has increased to 72%, with markets anticipating rates to fall by at least 50 bps by year-end.

While lower rates bode well for Gold, the increase in demand for equities and riskier assets may continue to weigh on bullion in the short term.

Source: Fxstreet