Gold sparkled last week but saw a modest pullback at the week’s outset. Its resilience stood out notably post the release of April’s disappointing non-farm payrolls data. Later in the week, the metal found further support as the dollar weakened post the release of jobless claims data, indicating a slowdown in the US labor market. This bolstered expectations of potential rate cuts by the Federal Reserve, possibly by September.
Hence, recent gains in gold can be partly attributed to a weaker dollar and increased anticipation of Fed rate adjustments. This week, the US dollar faces significant challenges with several key data releases on the horizon.
Upcoming US Inflation Data: Potential Impact on Gold Forecast
This week’s critical US data releases have the potential to significantly influence both the US dollar and, consequently, gold. On Tuesday, the latest Producer Price Index (PPI) figures will be unveiled, followed by the Consumer Price Index (CPI) on Wednesday. Additionally, Retail Sales data and the Empire State Manufacturing Index are slated for release on the same day. Thursday will bring forth further economic indicators, including Housing Starts & Permits, the Philly Fed index, industrial production figures, and weekly jobless claims.
For gold, the spotlight is on any signs of a weakening economy and labor market that could dampen inflationary pressures. The forthcoming inflation data will offer substantial insights into the duration of sustained interest rates.
Following a notable uptick in the University of Michigan’s Inflation Expectations survey to 3.5% from 3.2% last month, as reported on Friday, the latest PPI and CPI data for April hold the potential to significantly exacerbate or alleviate inflation concerns, depending on the direction of any surprises. CPI has consistently surpassed expectations since the start of the year. The Federal Reserve and those with bearish views on the dollar will be hopeful for a more subdued reading this time, as a failure to materialize could further postpone expectations of a rate cut. It is anticipated that CPI will ease to 3.4% year-on-year in April, down from 3.5% the previous month. On a month-over-month basis, a 0.4% increase in headline CPI and a 0.3% rise in core CPI are expected.
Gold Expected to Attract Buyers During Downturns
Throughout this year, it has become evident that gold traders are eager to capitalize on any downward shifts in the market. Given the strong performance of precious metals, it’s understandable why they have adopted this strategy. The current market weakness could potentially offer another opportunity for traders to purchase during a decline.
The momentum behind gold this year can be credited to significant demand, fueled by ongoing central bank purchases and growing interest in hedging against inflation. Persistent instances of inflation surpassing expectations have diminished the purchasing power of global currencies, prompting increased interest in alternatives to fiat currencies. Gold has emerged as a prominent choice in this regard.
China’s ongoing efforts to bolster its economic recovery further reinforce this trend, particularly considering its status as the world’s largest consumer of gold. Reports suggesting the nation’s plans to issue ultra-long special bonds could further strengthen commodities.
Gold Forecast: Technical Analysis and Key Factors to Monitor
Despite today’s decline, the XAUUSD outlook remains optimistic. The metal had been trading within a descending wedge pattern in recent weeks after its earlier surge to all-time highs. However, last week marked a departure from this pattern, suggesting that gold may be gearing up for another rise, especially as recent consolidation has allowed momentum indicators like the RSI to reset from their previously “overbought” levels, both temporally and in terms of pricing.
The breakout above the wedge pattern’s resistance trend signals potential continuation of the upward trend. It wouldn’t be surprising to witness gold gradually overcoming the next resistance zone around the $2360-80 range.
Targets for further bullish movement beyond $2460 include $2400, followed by April’s record high of $2431. However, the potential upward momentum could extend beyond that level.
Despite the bullish outlook, the possibility of a more significant correction below these levels cannot be dismissed, despite last week’s breakout from the descending wedge pattern suggesting otherwise. It’s wise to stay prepared for all scenarios, particularly given the significant event risk this week, notably the CPI data.
Therefore, it’s crucial to closely monitor key support levels. Currently, the first support level at $2340 is being tested, bringing the next short-term level at $2335 into focus. The critical level to watch is at $2320, representing the starting point of last week’s breakout from the wedge pattern’s bearish trend. A potential breach below $2320 would pose challenges for the bullish scenario.
