Gold (XAU) Forecast: Bullish Case Intact Despite Headwinds from Economic Data

Gold (XAU/USD) Faces Weekly Decline Amid Fed Rate Cut Speculation

Gold prices are poised for their largest weekly drop since early June, as traders eagerly await signals on potential U.S. interest rate cuts. Despite a turbulent week in the markets, the precious metal has shown resilience by maintaining support above its 50-day moving average. However, traders should note the dual nature of this indicator since it is also a potential trigger point for an acceleration to the downside.

At 10:51 GMT, XAU/USD is trading $2429.74, up $2.47 or +0.10%.

Fed’s Stance Reshapes Gold’s Outlook

Federal Reserve policymakers believe cooling inflation will pave the way for rate cuts, guided by economic data rather than stock market volatility. Markets currently price in a 55% chance of a 50-basis-point cut in September, with an additional cut expected in December. This shift in monetary policy expectations has been a key driver of gold’s recent price action.

Jobless Claims Surprise Markets

Recent U.S. jobless claims data came in below expectations, with initial claims totaling 233,000 in the latest week. This figure, down 17,000 from the previous week, suggests that concerns about labor market weakness may be premature. The positive economic signal has slightly dampened gold’s appeal as a safe-haven asset, contributing to its weekly decline.

Traders Eye Crucial Inflation Data

Investors are now turning their attention to next week’s U.S. Consumer Price Index (CPI) and Producer Price Index (PPI) reports for further insights into the Fed’s potential policy moves. These key inflation indicators could significantly impact gold prices in the short term, potentially reversing or accelerating the current downtrend.

Global Gold Demand Shows Mixed Signals

Physical gold demand in India saw a slight increase this week due to a price correction. However, market volatility led some buyers to delay purchases. In contrast, premiums in China rose on safe-haven buying, illustrating the complex interplay of factors affecting global gold demand.

Dollar and Treasury Yields Add Pressure

The U.S. Dollar Index hovered just below a one-week high reached on Thursday, while U.S. Treasury yields dipped overnight. These factors have added to the complex market environment for gold, as the precious metal typically moves inversely to both the dollar and yields.

Bullish Case for Gold Remains Intact

While gold has faced headwinds this week, its fundamental outlook remains positive. The precious metal is well-positioned to benefit from either increased risk aversion or expectations of looser monetary conditions. Multiple scenarios in the coming months could potentially drive gold prices to new all-time highs, suggesting a cautiously bullish outlook for traders in the near term. Nonetheless, it remain vulnerable to a steep correction should the 50-day moving average fail as support.

Technical Analysis

Gold (XAU/USD) is exhibiting strength on Friday as traders attempt to sustain gains above a pivot at $2430.16. If successful, this could lead to a test of the double-top at $2477.73 and $2483.74.

On the downside, the first two support levels are pivots at $2430.16 and $2380.54, respectively. The major support and potential trigger point for a steep decline remains the 50-day moving average at $2371.37.