Gold prices are directionless amid anticipation of US data – London Business News | Londonlovesbusiness.com

Gold prices (XAU/USD) are attempting to capitalise on the support they found on Monday at the $2,485 level, stabilising above $2,500 on Tuesday, ahead of the U.S. inflation data set to be released this week.

The Consumer Price Index (CPI) is scheduled for release on Wednesday, followed by the Producer Price Index (PPI) on Thursday. These data points will significantly influence market expectations regarding the Federal Reserve’s interest rate cuts, and they could provide the necessary momentum to guide gold prices in the near and medium term.

In my opinion, this hesitation reflects a sense of caution dominating the markets. Investors are awaiting strong indicators to help them make clear decisions about their gold positions, suggesting that the current price direction largely depends on upcoming U.S. economic data.

Despite the slight rise in gold prices, confidence in a bullish trend remains uncertain, as markets remain stuck in a narrow trading range, making it difficult to predict any strong breakouts before the economic picture becomes clearer by the end of the week.

Although gold has made recent attempts to climb, the U.S. dollar has started to regain strength, hitting peak levels last week. This is tied to declining expectations for a rate cut by the Federal Reserve in September, which is generally a negative factor for gold, as it tends to move inversely to the dollar’s strength. Additionally, the steady performance of global stock markets reduces gold’s appeal as a haven in the near term.

I believe these factors could lead to gold continuing to move within a limited trading range, but any negative inflation data or signs of economic slowdown could boost prices, especially if they are tied to weakening investor confidence in the dollar.

Recently, mixed U.S. employment data released last Friday reduced the likelihood of a significant rate cut. Traders currently see a 71% chance of a 25-basis-point rate cut and a 29% chance of a 50-basis-point cut at the next Federal Reserve meeting. In my view, these figures strongly support the dollar and reduce gold’s chances of rising in the short term.

Moreover, Federal Reserve officials’ comments suggest continued disagreement over the extent of the economic slowdown and the need for policy adjustments. John Williams, President of the Federal Reserve Bank of New York, mentioned that inflation expectations remain under control, leaving room for a more neutral stance. Meanwhile, Federal Reserve Governor Christopher Waller emphasized the importance of maintaining economic momentum, while Chicago Fed President Austan Goolsbee suggested that the time may be right to start cutting rates.

In my view, these statements could signal a slow shift toward more flexible monetary policies, which could support gold if investors believe inflation remains a persistent issue, even as employment indicators weaken.

I think that the upcoming inflation data, particularly the CPI and PPI, will be the decisive factors in determining the course of gold prices in the coming weeks. The primary focus should be on employment data rather than inflation at this point, as employment is the key indicator that will guide the Federal Reserve’s policy more than inflation at this stage.

Additionally, geopolitical tensions, especially in Gaza and Ukraine, continue to play a supportive role for gold as a haven. In Gaza, military operations have escalated significantly, increasing the likelihood of these tensions affecting global markets. In Ukraine, despite Ukrainian gains, Russian forces continue to advance in some strategic areas. In my view, the persistence of these tensions bolsters gold’s importance as a haven, even if economic data weighs negatively on market expectations.

This morning, Chinese data showed an increase in China’s trade surplus, rising from 601.98 billion yuan to 649.34 billion yuan in August. The 8.4% increase in exports indicates an improvement in the Chinese economy, but weak import numbers reflect declining domestic demand. In my view, these figures could add some downward pressure on gold if confidence in global markets strengthens. However, they could also be supportive if trade tensions negatively impact global markets.

Based on these factors, I believe gold prices currently lack a strong short-term direction amid investor hesitation. The upcoming U.S. data, especially related to inflation and employment, will be the key drivers in determining price movement. However, with geopolitical tensions, gold may continue to offer support as a haven, making an upward trend the most likely scenario if economic conditions deteriorate or geopolitical crises escalate globally.

Technical analysis of Gold (XAU/USD) prices

From a technical perspective, the price movement within a narrow range over the past three weeks or so has formed a rectangular pattern on the daily chart. Given the recent rise to an all-time high, this can still be classified as a bullish momentum consolidation phase.

The oscillators on the daily chart remain in positive territory, reinforcing the near-term positive outlook for gold prices. However, it would be prudent to wait for a sustained breakout of the trading range resistance, or the all-time high around the $2,530-$2,532 area, before confirming any future price moves.

On the other hand, any significant decline is likely to find some support near the $2,485 area, followed by horizontal support around $2,470. The latter represents the lower bound of the aforementioned trading range, which, if decisively broken, could trigger some technical selling and pave the way for deeper losses. Gold prices could then accelerate their decline toward the 50-day Simple Moving Average (SMA), currently near the $2,446 area, before eventually dropping to the $2,410-$2,400 region.

As gold (XAU/USD) continues to trade sideways between its all-time high of $2,531 and a low of around $2,475, it is currently trading near the middle of this range. The yellow metal will likely continue fluctuating within this range until a clear breakout occurs on either side.

A clear and decisive breakout would be accompanied by a long green or red candle that breaches either the upper or lower part of the range and closes near the top or bottom, or by three consecutive candles of the same color breaking the mentioned horizontal level.

Support levels: 2500 – 2494 – 2484

Resistance levels: 2513 – 2519 – 2530