Gold Weekly Forecast: Trade talks, US inflation data to drive near-term action

• Gold failed to stabilize above $3,400 following a bullish start to the week.
• May inflation data from the US and trade headlines could continue to drive XAU/USD action.
• The technical outlook fails to provide a direction clue in the near term.

Gold (XAU/USD) started the week on a strong footing but failed to gather further bullish momentum. The lack of clarity on the United States’ (US) trade relations with its partners makes it difficult for the pair to make a decisive move in either direction as market focus shifts to May inflation data from the US.

Gold struggles to find direction

Safe-haven flows dominated the action in financial markets on Monday, and Gold rose more than 2.5% on a daily basis. After US President Donald Trump accused China of violating its agreement on Friday, the Chinese Ministry of Commerce responded in a statement released over the weekend, saying that the US is the one that breached the 90-day trade truce by introducing a series of “discriminatory and restrictive measures against China.” Additionally, Gold further benefited from the escalating geopolitical tensions on news of Ukraine carrying out a large-scale drone attack against Russian military bombers in Siberia.

Reuters reported late Monday that the Trump administration sent out letters to negotiating partners, asking for their best offer by midweek. This headline helped the risk mood improve early Tuesday and caused Gold to correct lower. Later in the day, the data from the US showed that the number of job openings rose to nearly 7.4 million in April from 7.2 million in March, helping the US Dollar (USD) hold its ground.

On Wednesday, the USD came under pressure following disappointing economic data releases. The Automatic Data Processing (ADP) reported that employment in the private sector rose by 37,000 in May, missing the market expectation of 115,000 by a wide margin, while the Institute for Supply Management (ISM) Services Purchasing Managers’ Index (PMI) declined to 49.9 in May from 51.6 in April. In turn, XAU/USD ended the day marginally higher.

Although XAU/USD benefited from the broad-based USD weakness and touched a fresh multi-week high above $3,400 on Thursday, it closed the day in negative territory. While speaking to reporters after announcing a 25 basis points (bps) cut in key rates, European Central Bank (ECB) President Christine Lagarde hinted that the central bank may have reached the end of its easing cycle. This hawkish remark triggered a sharp decline in XAU/EUR, suggesting that the Euro (EUR) captured capital outflows out of Gold. In the meantime, US President Trump said that he held a phone call with Chinese President Xi Jinping to discuss trade and noted that their teams will soon meet for the next round of negotiations. This development helped the market mood improve and put additional pressure on Gold. 

The US Bureau of Labor Statistics (BLS) announced on Friday that Nonfarm Payrolls (NFP) rose by 139,000 in May. This reading came in better than the market expectation of 130,000. Other details of the employment report showed that the Unemployment Rate held steady at 4.2%, as forecast. With these figures supporting the USD, the XAU/USD pair struggled to regain its traction heading into the weekend.

Gold investors will scrutinize US inflation data, trade talks

In the early trading hours of the Asian session on Monday, May Trade Balance data from China will be watched closely by market participants. In case China’s trade surplus narrows significantly because of the trade conflict with the US, the immediate market reaction could trigger a leg lower in Gold. Such a reading would likely suggest a worsening demand outlook for the precious metal and could cause markets to think that China is likely to put more effort into reaching a trade agreement with the US.  

On Wednesday, the US BLS will publish the Consumer Price Index (CPI) data for May. A softer-than-expected reading in the monthly core CPI, which excludes volatile food and energy prices, could put the USD under selling pressure, benefiting XAU/USD. On the other hand, investors could lean toward a Federal Reserve (Fed) policy hold in July on a hot core CPI print, forcing Gold to stretch lower. According to the CME FedWatch Tool, markets are currently pricing in about a 17% probability of a 25 bps rate cut in July.

The Fed will be in the blackout period next week. Hence, investors will be fully focused on fresh developments surrounding the US trade talks. An improving market sentiment, with the US announcing new deals with partners, could cause Gold to lose interest. Conversely, the yellow metal is likely to remain attractive if geopolitical tensions remain high or the next round of US-China trade talks yields no positive or concrete results.

Gold technical analysis

Gold’s trading range continues to narrow within a symmetrical triangle, suggesting that investors stay on the sidelines while awaiting the next breakout. Meanwhile, the Relative Strength Index (RSI) indicator on the daily chart continues to fluctuate in a tight channel slightly above 50, reflecting a lack of directional momentum.

Gold could face the first resistance area at $3,420-$3,430 (mid-point of the six-month-old uptrend, static level). A daily close above this region could attract technical buyers and open the door for another test of the all-time high at $3,500. Once Gold stabilizes above this level, $3,600 (round level) could be seen as the next bullish target.

On the downside, a strong support level seems to have formed near $3,300, where the lower limit of the ascending channel, the 20-day Simple Moving Average (SMA) and the Fibonacci 23.6% retracement of the uptrend converge. If this support fails, $3,230 (50-day SMA) could act as interim support before $3,150 (Fibonacci 38.2% retracement).