Gold Prices Forecast: Set for Weekly Gain Amid US Inflation Easing

Gold Prices Edge Higher as Inflation Softens

Gold prices are showing a modest increase on Friday, moving higher within the recent consolidation range after the sharp decline on June 7. Traders are currently on the lookout for significant market catalysts that could either push gold above the 50-day moving average or cause it to fall below the last swing bottom of $2277.34.

At 09:55 GMT, XAU/USD is trading $2320.92, up $16.78 or +0.73%.

Weekly Gain Amid US Economic Data

Gold is set for its first weekly gain in four weeks, buoyed by recent US economic data suggesting a reduction in price pressures. This has sparked optimism about a potential rate cut by the Federal Reserve. Despite these positive developments, the gains are limited by the lack of robust central bank purchases, particularly from China. For the week, gold has risen by 0.5%.

Fed Rate Cut Speculation

Market participants are closely monitoring comments from Federal Reserve officials. The prevailing sentiment is that the Fed might implement two interest rate cuts this year, as inflation appears to be moving towards the Fed’s target. This potential for rate cuts is providing support for gold, although short-term sentiment-driven pullbacks may present buying opportunities for investors.

Inflation Data and Treasury Yields

US producer prices unexpectedly fell by 0.2% in May, below economists’ expectations, indicating that inflation may be easing. This follows a cooler-than-expected Consumer Price Index (CPI) report earlier in the week, which has kept hopes alive for a Fed rate cut in September. As a result, the yield on 10-year US Treasury bonds edged lower to 4.227%, while the 2-year Treasury notes saw a slight increase to 4.69%.

Investor Sentiment and Rate Cut Prospects

The market is currently pricing in a 67% probability of a rate cut in September, up from 63% prior to the producer price data release. Deutsche Bank analysts note that the recent data has increased investor confidence in the prospect of rate cuts, further supported by a strong 30-year Treasury auction.

Market Forecast

Given the current economic data and investor sentiment, gold is likely to remain supported in the near term. Continued signs of weakening inflation could strengthen gold’s appeal as a safe-haven asset. However, traders should remain cautious of potential pullbacks, viewing them as opportunities to enter the market. The overall outlook for gold appears bullish, driven by expectations of rate cuts and the ongoing softness in inflation.

Technical Analysis

XAU/USD is edging higher on Friday. The market is holding last Friday’s low at $2286.83 and the swing bottom at $2277.34, but struggling to overcome the 50-day moving average at $2344.88. This indicator is controlling the intermediate trend.

Essentially, the short-term trend and the intermediate-term trend are down, but the long-term trend is up. We could be looking at an upside breakout over the 50-day moving average, however, the risk remains to the downside, especially if $2277.34 fails as support.