Gold’s weekly update: Fed chair talk as markets await US inflation data

Gold’s edged higher since our last report yet the market may still have some hesitation to pump it higher. In today’s report we are to have a look at the market’s expectations which are regarded currently as key for gold’s direction, the upcoming US financial releases and geopolitical issues all of which could play a role in gold’s direction. The report is to be complemented with a technical analysis of gold’s four hour chart.

New Fed Chair to be announced soon?

Since our last report, President Trump speaking to reporters on Sunday stated that “I know who I am going to pick, yeah. We’ll be announcing it”. It had surfaced that White House National Economic Council Director Kevin Hassett is the current frontrunner for the position. In turn this may have further increased market optimism for rate cuts in the upcoming year, considering how Hassett has aligned himself with Trump’s position on the Fed’s monetary policy path. Hence should Hassett be confirmed to be the President’s pick to lead the Fed next year, the dovish implications of his tenure as Fed Chair could weigh on the dollar, whilst aiding gold’s price given their inverse relationship.

US Inflation data due out Friday

Specifically, the release of the PCE rates, which have now been confirmed for Friday, are set to garner significant attention from market participants. The US PCE rates for September are due out this Friday and considering the FOMC’s last meeting for the year will occur in two weeks' time the particular release may lead to more volatility in the markets than usual. The current expectations per the LSEG terminal are for the PCE rates are for a slight acceleration on a headline level from 2.7% to 2.8%, whereas the Core PCE rate is expected to remain steady at 2.9%. Hence, should the PCE rates come in as expected, implying a slight acceleration of inflationary pressures in the US economy on a headline level, it may provide support for the dollar as the Fed may face pressure to remain on hold in their final meeting of the year and could thus weigh on gold’s price. Whereas on the other hand, should the PCE rates come in lower than expected it may have the opposite effect.

Geopolitics watch

Another issue that gold traders tend to keep an eye out for, are geopolitics. Currently we note the continued deterioration between Venezuela and the US, with reports emerging which claim that the US President Trump had offered Maduro safe passage if he stepped down and left the country. Per Reuters , “Trump rejected most of his requests on the call, which lasted less than 15 minutes, but told Maduro he had a week to leave Venezuela for the destination of his choice alongside his family members.” However, that offer appears to have expired on Friday, with President Trump declaring over the weekend that Venezuela’s airspace was closed. In turn should the two nation’s engage in a military conflict, it could possibly provide support for gold’s price given its safe have asset status.

Technical analysis

XAU/USD H4 Chart

• Support: 4142 (S1), 4080 (S2), 4010 (S3).
• Resistance: 4240 (R1), 4315 (R2), 4380 (R3).

XAU/USD appears to be moving in an upwards fashion after clearing our resistance now turned to support at the 4142 (S1) level. We opt for a bullish outlook for the precious metal’s price and supporting our case is the upwards moving trendline located on our chart. For our bullish outlook to be maintained we would require a clear break above our 4240 (R1) resistance line with the next possible target for the bulls being our 4315 (R2) resistance level. On the other hand, for a sideways bias we would require gold’s price to remain confined between our 4142 (S1) support level and our 4240 (R1) resistance line. Lastly, for a bearish outlook we would require a clear break below our 4142 (S1) support level with the next possible target for the bears being our 4080 (S2) support line.