Gold (XAU) Price Forecast: Will U.S. Inflation Data Trigger a Gold Rally?

Gold Prices Firm Ahead of U.S. Inflation Data Release

Gold prices edged higher on Monday, driven by growing anticipation of a U.S. interest rate cut and escalating geopolitical tensions. Investors are now closely watching the upcoming U.S. inflation data, which could provide critical clues for future Federal Reserve monetary policy decisions.

At 11:05 GMT, XAU/USD is trading $2443.40, up $12.13 or +0.50%.

Market Awaits Inflation Data for Fed Cues

Traders are currently pricing in a 49% probability of a 50 basis points rate cut by the Federal Reserve in September, according to CME Group’s FedWatch tool. The U.S. Producer Price Index (PPI) and Consumer Price Index (CPI), scheduled for release on Tuesday and Wednesday, respectively, will be scrutinized for indications of inflationary pressures.

Expectations are that the PPI will show a modest increase in wholesale prices, while the CPI is anticipated to maintain its recent downward trend, reflecting an annual inflation rate of around 3%. UBS analyst Giovanni Staunovo highlighted the importance of the inflation figures, noting that the data will likely influence whether the Fed opts for a 25 or 50 basis points cut, potentially driving higher volatility in gold prices.

Geopolitical Tensions Provide Additional Support

Geopolitical risks are also bolstering gold prices. Heightened military activity near Ukraine’s border and ongoing tensions in the Middle East, particularly involving Hamas and Israel, are adding to market uncertainty. Mike Ingram, a market analyst at Kinesis Money, remarked that gold’s technical position remains strong, with major resistance levels approaching near all-time highs at $2,468.

Treasury Yields and Economic Data in Focus

On the economic front, U.S. Treasury yields increased on Monday as investors braced for the latest inflation data. The 10-year Treasury yield rose slightly to 3.953%, while the 2-year yield was up at 4.063%. The PPI and CPI releases this week are expected to shed light on whether the Fed might shift its stance on interest rates, especially after a recent softer jobs report that stoked recession concerns.

Market Forecast: Bullish on Gold

Given the mix of geopolitical tensions, anticipation of U.S. inflation data, and potential rate cuts by the Federal Reserve, the outlook for gold prices appears bullish. If inflation data aligns with or falls below market expectations, gold may see a significant boost, potentially challenging previous record highs. Traders should watch for heightened volatility in the short term as the market reacts to these key events.

Technical Analysis

XAU/USD is edging higher on Monday, solidifying its position above the new support level at $2,418.47. Major support remains at the 50-day moving average of $2,373.23.

The daily chart suggests the market has a clear path to test resistance at $2,477.73 and $2,483.74. However, if the 50-day MA fails to hold, prices could drop by as much as $100.