Gold (XAU) Price Forecast: Will CPI Data Trigger a Sustained Breakout Above $2531?

Gold Prices Edge Higher as Traders Eye U.S. CPI Data

Gold prices ticked up on Wednesday, with traders focused on the U.S. Consumer Price Index (CPI) report due at 12:30 GMT. The precious metal has remained rangebound for nearly a month, but the market is positioned for a potential breakout above the record high of $2531.77. Traders anticipate movement in the coming sessions, especially as a decisive push could spark a rally, but sustained momentum will depend on follow-through buying after the initial breakout.

A breakout could be driven by a variety of triggers, including buy stops, but it’s the follow-through that will determine whether this rally gains traction. The real question is whether traders will switch from their usual “buy the dips” strategy to buying into strength.

At 11:08 GMT, XAU/USD is trading $2522.28, up $5.54 or +0.22%.

U.S. Inflation Data and Federal Reserve Policy Loom Large

Wednesday’s CPI report is expected to provide critical insight into the inflation landscape and influence the Federal Reserve’s upcoming decisions. According to a Reuters poll, the headline CPI is forecast to rise by 0.2% on a month-over-month basis for August, in line with the previous month. Year-over-year CPI is expected to show a 2.6% increase, down from 2.9% in July.

This inflation data is significant as it will inform the Federal Reserve’s next steps on interest rates. Markets are looking for signs that inflation is easing enough to allow for a potential 50-basis-point rate cut by the Fed. However, a sharper-than-expected slowdown in inflation could signal weakening demand, a scenario that may unsettle investors.

Interest Rate Outlook and Gold’s Appeal

The Federal Reserve is expected to cut interest rates by 25 basis points at its three remaining policy meetings in 2024, though only a minority of analysts anticipate a half-point reduction next week. Lower rates would boost gold’s appeal as a non-yielding asset, but some analysts warn that the market may have already priced in expectations of a Fed pivot. Ross Norman, an independent analyst, cautioned that prices might dip before a more substantial rally occurs, though a test of $2,650 in 2024 is not off the table.

Gold Supported by Geopolitical Tensions and Central Bank Demand

Gold has gained over 22% this year, driven by a combination of factors including geopolitical uncertainties, optimism around rate cuts, and strong demand from central banks. Despite current range trading, the long-term outlook for gold remains positive, with new highs in 2024 a possibility.

Market Forecast: Bullish Outlook for Gold Prices

Given the upcoming CPI data and the likelihood of rate cuts, gold appears poised for a bullish run. Any signs of easing inflation or dovish signals from the Federal Reserve will likely support a breakout above current levels. While short-term volatility could see prices dip briefly, the long-term outlook for gold remains positive, with a potential move toward $2,650 by next year. Traders should watch for the key inflation data releases and Fed commentary to confirm further upward momentum.

With the main trend up, we like the long side despite lofty price levels. It’s easy to identify breakout points, but harder to sustain breakout rallies. So the focus should be on a sustained rally. Looking ahead, the market remains well-supported by the 50-day moving average at $2449.83.