Gold Prices Forecast: Can CPI Data Ignite Rally to New Record High?

Gold Rallies on Labor Market Data and Rate Cut Expectations

Gold prices surged to one-month highs last week, driven by a combination of economic indicators and shifting market sentiment. The precious metal’s performance was closely tied to developments in the U.S. labor market and evolving expectations for Federal Reserve policy.

Last week, XAU/USD settled at $2391.62, up $64.90 or +2.79%.

Labor Market Signals

June’s non-farm payrolls report showed 206,000 new jobs, surpassing expectations. However, significant downward revisions to May and April figures, coupled with an uptick in the unemployment rate to 4.1%, suggested a cooling labor market. These data points strengthened the case for potential Fed rate cuts.

Fed Rate Cut Probability Rises

Market confidence in a September rate cut remained robust, with implied probability holding steady at approximately 72%. Traders began factoring in an increased likelihood of a second rate cut by December, further supporting gold prices.

Dollar Weakness and Yield Decline

The U.S. dollar index fell 0.92% over the week, enhancing gold’s appeal to holders of other currencies. Concurrently, yields on the benchmark 10-year Treasury note decreased, reducing the opportunity cost of holding non-yielding gold.

Technical Analysis

The weekly chart reveals a strong uptrend in gold prices since October 2023, with the metal breaking out of a consolidation phase in February 2024. The recent price action shows a series of higher lows and higher highs, confirming the bullish trend.

Key technical levels to watch:

1. Support: $2,363.74 (50% level or pivot)
2. Resistance: $2,450.13 (All-Time High)

The current price is testing the upper range of the recent consolidation, suggesting potential for a breakout if bullish momentum continues.

Upcoming Catalysts

Next week’s trading will likely be influenced by the June Consumer Price Index (CPI) report. Economists anticipate a 0.2% rise in headline CPI, with core CPI expected to remain unchanged. A cooler-than-expected inflation reading could reinforce rate cut expectations.

Fed Chairman Powell’s two-day Congressional testimony, beginning Tuesday, will be closely monitored for insights into the central bank’s stance on future rate decisions.

Weekly Forecast

The short-term outlook for gold appears bullish. With ongoing expectations of Fed rate cuts, potential dovish signals from Powell, and the possibility of softer inflation data, gold prices may continue their upward movement. The technical setup supports this view, with the price action suggesting a potential test of the $2,450 level.

However, traders should remain alert to any surprises in economic data or unexpected shifts in Fed rhetoric that could alter this trend. A break below the $2,363.74 support level could signal a short-term reversal.

As the market anticipates next week’s events, particularly the CPI report and Powell’s testimony, volatility in gold prices may increase. Traders should be prepared for potential price swings and adjust their strategies accordingly. The convergence of fundamental factors and technical indicators suggests that gold could test higher levels if the current narrative of economic softening and impending rate cuts persists.