Spot gold staged a strong rebound on Thursday, with the latest U.S. PCE inflation data aligning with forecasts, easing concerns about an imminent Federal Reserve rate hike. This led to a decline in the U.S. dollar and Treasury yields, providing support for the precious metal. Earlier, some traders had feared the inflation data might come in hotter than expected.

Spot gold closed the session sharply higher by $27.57, or 0.7%, at $4026.53 per ounce, after having fallen as much as 1% during the day.

FXStreet analyst Christian Borjon Valencia noted that spot gold's recovery on Thursday was primarily driven by a weaker U.S. dollar, with prices having touched an intraday low of $3963 per ounce.

The U.S. Dollar Index, which measures the greenback against a basket of six major currencies, fell 0.19% to 101.39, retreating from Wednesday's yearly high of 101.80.

Oil prices pulled back from historic highs reached during U.S.-Iran tensions as Washington and Tehran signed an agreement aimed at achieving peace and reopening the Strait of Hormuz. The U.S. crude benchmark, West Texas Intermediate, is currently trading around $71.50 per barrel. The price rose 2.40% on Thursday but has declined nearly 19% so far this month.

Key Inflation Data Aligns with Forecasts

Data released on Thursday showed the U.S. Personal Consumption Expenditures price index rose 4.1% year-over-year in May, marking the largest increase since April 2023 and the first time it has surpassed 4.0%. However, the figure matched economists' estimates. Additionally, the core PCE price index, which excludes food and energy, increased 3.4% year-over-year, up from 3.3% in April but also in line with expectations.

David Meger, Director of Metals Trading at High Ridge Futures, commented on Thursday, "The PCE data was largely in line with market expectations. That's one reason why gold's price action has been relatively calm today."

Following the inflation report, the U.S. dollar relinquished its gains and turned lower, making dollar-denominated gold cheaper for overseas buyers. U.S. Treasury yields also edged down.

Fed Rate Hike Odds Recede

According to the CME FedWatch Tool, market-implied probability for a Fed rate hike in December now stands at 80%, down from 85% prior to the PCE data release.

Meger added, "The primary focus going forward will remain on inflationary pressures, which has been part of the reason for gold's weakness over the past few sessions."

Gold prices had fallen below $4000 per ounce on Wednesday, a level not seen since November 2025, after the Federal Reserve struck a hawkish tone at its policy meeting, fueling expectations for rate hikes this year.

Technical Analysis for Gold

FXStreet analyst Christian Borjon Valencia pointed out that despite the recent rebound pushing prices back above $4000, the overall downtrend for gold is expected to persist. The price action, characterized by a series of lower lows and lower highs, reinforces the bearish bias, though the trend is showing signs of exhaustion.

On the other hand, the Relative Strength Index has rebounded from the oversold level of 30, forming a higher low. This sequence of higher lows in the RSI, diverging from the price action of gold, suggests a potential bullish signal may be emerging.

Valencia stated that on the upside, gold needs to break above the psychological $4050 per ounce level, and subsequently overcome resistance at $4098, which was the intraday low from March 23 (now acting as resistance). A successful breach of these levels would bring the next target of $4200 into focus.

Valencia added that on the downside, should sellers manage to push the price back below $4000, spot gold could resume its downtrend. A deeper sell-off would find the next support at the year-to-date low of $3959, followed by the key $3900 level.