Gold Weekly Forecast: Focus shifts to key US data releases following technical correction
- Gold corrected lower after touching a new all-time high at $2,758.
- The technical outlook suggests that the bullish bias remains intact in the near term.
- Next week’s economic calendar will feature key US data releases that could impact Gold’s valuation.
Gold (XAU/USD) extended its uptrend and reached a new all-time high above $2,750. Rising US Treasury bond yields and the improving risk mood, however, made it difficult for the precious metal to preserve its bullish momentum in the second half of the week. The US economic calendar will feature Gross Domestic Product (GDP) data for the third quarter and labor market figures for October, which could significantly affect Gold’s valuation next week.
Gold loses bullish momentum
Gold edged higher to start the week as the People's Bank of China’s (PBoC) decision to cut the one-year Loan Prime Rate (LPR) by 25 basis points (bps) from 3.35% to 3.10% eased concerns over an economic downturn. Additionally, escalating geopolitical tensions allowed the precious metal to capture safe-haven demand on Monday as markets reacted to reports of Hezbollah claiming responsibility for a drone attack that targeted Israeli Prime Minister Benjamin Netanyahu’s house over the weekend.
XAU/USD preserved its bullish momentum on Tuesday and gained more than 1% on the day. In the absence of high-tier data releases, Gold continued to benefit from the souring market mood. After reaching a new all-time high of $2,758 during the European trading hours on Wednesday, the precious metal reversed its direction and closed the day with a 1.2% loss. Rising US Treasury bond yields and the broad-based US Dollar (USD) strength caused XAU/USD to lose its footing midweek. Additionally, profit-taking after the record-setting rally may have ramped up the bearish pressure.
On Thursday, data from the US showed that the business activity in the private sector continued to grow at a healthy pace in early October, with the preliminary S&P Global Composite Purchasing Managers Index (PMI) edging higher to 54.3 in October from 54.0 in September. Assessing the survey’s findings, “October saw business activity continue to grow at an encouragingly solid pace, sustaining the economic upturn that has been recorded in the year to date into the fourth quarter,” said Chris Williamson, Chief Business Economist at S&P Global Market Intelligence and added: “The October flash PMI is consistent with GDP growing at an annualized rate of around 2.5%.” Gold struggled to gather recovery momentum after this report and ended the day modestly higher.
The market action turned choppy heading into the weekend and Gold spent Friday fluctuating in a relatively narrow range.
Gold investors gear up for key data releases
The US Bureau of Economic Analysis (BEA) will publish the first estimate of the annualized Gross Domestic Product (GDP) growth for the third quarter on Wednesday. Investors forecast the US GDP to expand by 3% in this period, matching the growth recorded in the second quarter. A reading above the market expectation could boost the USD as the immediate reaction and cause XAU/USD to stretch lower. On the other hand, a disappointing GDP print, between 1% and 2%, could hurt the USD.
On Thursday, the BEA will publish the Personal Consumption Expenditures (PCE) Price Index, the Federal Reserve’s (Fed) preferred gauge of inflation, for September. Because the GDP report will also offer quarterly PCE Price Index numbers, the monthly data is unlikely to trigger a market reaction.
The US Bureau of Labor Statistics (BLS) will release the labor market data for October on Friday. In September, Nonfarm Payrolls (NFP) rose by 254,000. This reading surpassed the market expectation of 140,000 by a wide margin and caused markets to refrain from pricing in a 50 basis points (bps) Fed rate cut in November.
According to the CME FedWatch Tool, markets nearly fully price in a 25 bps rate cut at the upcoming meeting and see about a 70% chance of the Fed lowering the policy rate by a total of 50 bps by the end of the year. At this point, it would take a significant downside surprise in NFP for markets to reconsider the possibility of a large rate cut either in November or December. In case the NFP comes in at or below 100,000, the USD could come under heavy selling pressure and open the door for a Gold rally heading into the weekend.
Conversely, an NFP print between 180,000 and 220,000 could be seen as a ‘good enough’ figure for the Fed to opt for two 25 bps rate cuts by the end of the year. Finally, investors could doubt a rate cut in December if the NFP arrives near 300,000 or higher. In this scenario, XAU/USD could come under strong bearish pressure.
Gold technical outlook
The Relative Strength Index (RSI) indicator on the daily chart retreated toward 60 after rising above 70 earlier in the week, suggesting that the bullish bias remains intact after Gold corrected its overbought conditions. Additionally, XAU/USD remains within the ascending regression channel coming from June.
Looking south, first support could be spotted at $2,700, where the mid-point of the ascending channel is located, before $2,675 (20-day Simple Moving Average) and $2,635 (lower limit of the ascending channel).
On the upside, interim resistance seems to have formed at $2,750 before $2,770 (upper limit of the ascending channel) and $2,800 (round level).
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.
Premium
You have reached your limit of 3 free articles for this month.
Start your subscription and get access to all our original articles.
Author
Eren Sengezer
FXStreet
As an economist at heart, Eren Sengezer specializes in the assessment of the short-term and long-term impacts of macroeconomic data, central bank policies and political developments on financial assets.
