Gold Prices Forecast: Softer US Data Spurs XAU/USD Gains Ahead of PMI Data

Gold Prices Set for Second Consecutive Weekly Gain

Gold prices are inching higher on Friday, poised to post a second consecutive weekly gain. Softer U.S. economic data has kept traders optimistic for interest rate cuts later this year. Bullion has increased by more than 1% this week, adding to the 1.7% gain from the previous week.

At 11:06 GMT, XAU/USD is trading $2364.74, up $4.595 or +0.19%.

Economic Data and Interest Rate Expectations

Recent U.S. economic data has pointed to a potential slowdown. Thursday’s report showed first-time applications for unemployment benefits fell moderately, while new housing construction dropped significantly. Tepid retail sales last month have kept the possibility of a September rate cut on the table. Lower interest rates typically reduce the opportunity cost of holding non-yielding bullion, providing support for gold prices.

Treasury Yields Surprisingly Dip

U.S. Treasury bond yields dipped slightly on Friday as investors analyzed the latest economic data for signs of a slowing economy. The 10-year Treasury yield fell 2 basis points to 4.23%, and the 2-year Treasury note yield dropped 2 basis points to 4.709%. The number of Americans filing new claims for unemployment benefits dropped by 5,000 to 238,000 for the week ended June 15, slightly above economists’ forecasts. Housing starts fell more than expected last month, down 5.5% to a seasonally adjusted annual rate of 1.277 million units.

US Dollar Hits 8-Week High

The U.S. dollar pushed to a fresh eight-week high against the yen and remained near a five-week peak against the sterling on Friday. The dollar index, which measures the currency against six major peers, spiked 0.41% overnight. This increase followed dovish signals from the Swiss National Bank and the Bank of England, with the latter hinting at a potential rate cut in August. The dollar index is on course for a slight weekly gain, extending its winning streak to three weeks.

Impact of Yields and Dollar on Gold

Lower Treasury yields and a strong dollar have a mixed impact on gold prices. Lower yields are supportive because they reduce the opportunity cost of holding non-yielding assets like gold. When bond yields fall, gold becomes more attractive as an investment. However, a stronger dollar tends to be restrictive because gold is priced in dollars. As the dollar strengthens, gold becomes more expensive for foreign investors, potentially dampening demand.

Market Forecast: Bullish

Given the current economic data and trends, gold prices are likely to maintain their upward momentum in the short term. The potential for further interest rate cuts and lower Treasury yields support a bullish outlook for gold. While a stronger dollar might create some headwinds, the overall economic environment suggests continued strength for bullion. Traders will be closely monitoring upcoming manufacturing and services Purchasing Managers’ Index readings for June, as well as existing home sales data for further market direction.

Technical Analysis

Upside momentum in the XAU/USD can continue to build now that the market has crossed to the strong side of the 50-day moving average at $2344.26. This indicator is new support.

The nearest upside target is the short-term swing top at $2387.79. Taking out this level with strong conviction could trigger an acceleration into the May 20 record high at $2450.13.

The key to sustaining this rally on Friday is the 50-day MA.