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Gold Price Weekly Forecast: Bottom May Be In Before Us Inflation Reports

Leon Kramer

ByLeon Kramer

Sep 10, 2023

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  • The price of Gold experienced a modest decline during the current week, following two consecutive weeks of gains.
  • The optimism of buyers persists as the XAU/USD currency pair maintains its position above the critical 200-day Simple Moving Average (SMA).
  • The potential release of August inflation data from the United States has the potential to elicit a discernible response in the currency above pair. 

After experiencing a bearish start to the week, the price of Gold has demonstrated stability above the significant 200-day Simple Moving Average (SMA), positioned just below the $1,920 mark. Should the support above remain intact leading up to the forthcoming release of the eagerly awaited August inflation data from the United States, investors may exhibit a degree of reluctance in placing wagers on any potential further decline in the XAU/USD exchange rate.

What Did the Last Week Bring About?

As indicated by recent macroeconomic data releases from the United States, there has been a discernible absence of advancement in inflation coupled with a reasonably robust level of economic activity. Consequently, investors have initiated a process of reevaluating the likelihood of the Federal Reserve (Fed) implementing a further adjustment to its policy rate before the conclusion of the current calendar year. Consequently, there was an upward expansion in US Treasury bond yields, accompanied by a sustained demand for the US Dollar. This exerted pressure on XAU/USD, causing it to remain disadvantaged during the first half of the week.

The price of Gold experienced limited oscillations within a narrow spectrum on Monday, primarily due to the scarcity of trading activity resulting from the observance of the US Labor Day holiday. On Tuesday, recent data from China revealed a decline in growth momentum within the service sector during August. The Caixin Services PMI experienced a decrease from 54.1 in July to 51.8. As a result of the prevailing safe-haven sentiment in financial markets, the USD exhibited a notable increase in value relative to other currencies. Consequently, the XAU/USD currency pair experienced a decline exceeding 0.5% over the day.

The ISM Services PMI experienced a notable increase to 54.5 in August, indicating a sustained expansion of economic activity within the United States service sector. The report highlights that employment within the industry experienced growth while there was an observed increase in input price pressures. The 10-year US Treasury bond yield experienced an increase, reaching 4.3% on Wednesday after the data release. Consequently, Gold’s price declined, falling below $1,920 for the first time within a week.

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According to the Department of Labor’s report, there was a decrease of 13,000 in the number of initial unemployment benefit applications in the United States. This decline brought the total to 216,000 for the week ending on September 2. The data above represents the most recent nadir observed since the commencement of February, thereby underscoring the prevailing stringent circumstances within the labor market.

In the interim, it is worth noting that the Bureau of Labor Statistics has recently disclosed a revision to the previously reported figures about the escalation of Unit Labor Costs during the second quarter. The revised estimate now stands at 2.2%, surpassing the initial projection of 1.6%. The USD Index, a metric used to assess the relative value of the US dollar against a selection of six prominent currencies, has experienced a notable upswing, reaching its highest point in nearly half a year, surpassing the 105.00 mark. This upward trajectory has hindered any potential recovery for XAU/USD.

The yield on the 10-year US Treasury bond experienced a downward correction during the week’s final trading session. The XAU/USD currency pair has established a stable position and entered a period of consolidation above the $1,9220 level. 

To Be Continued Next Week

The forthcoming release of the August Consumer Price Index (CPI) data from the United States on Wednesday is expected to be the week’s focal point. Based on current projections, the Consumer Price Index (CPI) is anticipated to experience a monthly growth of 0.5%. In contrast, the Core CPI is predicted to exhibit a corresponding increase of 0.2%.

The prevailing sentiment within financial markets indicates a lack of anticipation for an increase in the policy rate by the Federal Reserve in September. Furthermore, it is improbable that any forthcoming inflation data will significantly impact this prevailing perspective. According to the CME Group FedWatch Tool, it is observed that investors continue to perceive a probability of approximately 40% for the Federal Reserve to engage in another interest rate hike by the conclusion of the current year, potentially occurring in either the month of November or December. 

The initial market response to the Consumer Price Index (CPI) data may exhibit a direct and uncomplicated nature. A monthly reading that exceeds expectations may generate speculation of a more aggressive stance from the Federal Reserve, potentially exerting downward pressure on the XAU/USD pair. Conversely, a weaker-than-anticipated reading could have the opposite effect, potentially facilitating a recovery in the pair’s performance.

In the present market environment, it is challenging to ascertain the potential downside for the Gold price, particularly in light of investors’ inclination towards increased Federal Reserve tightening. The 10-year US Treasury bond yield experienced a consistent upward trajectory over four consecutive months, resulting in a notable increase of approximately 20% from May to September.

In the interim, there has been a growing apprehension regarding a potential worldwide deceleration in economic activity despite the comparatively greater resilience exhibited by the United States economy in contrast to other prominent economies. 

The potential convergence of various factors, including a combination of divergent macroeconomic indicators in the United States, a forward-looking monetary policy stance by the Federal Reserve characterized by a more aggressive approach, and a prevailing cautious sentiment within the market that is inclined towards risk aversion, may contribute to a potential upper limit being reached in the 10-year US yield. This upper limit could be influenced by indications suggesting an impending economic downturn. This phenomenon may prompt investors to seek solace in Treasury bonds characterized by extended maturity periods.

In summary, the current market conditions may lead to a scenario wherein the United States yields experience a downward trend due to an increased desire for Treasury bonds. This can be attributed to investors reevaluating their positions in anticipation of a potential economic downturn instead of relying on the previously anticipated “higher for longer” policy rate set by the Federal Reserve. 

The World Gold Council, in its monthly report released on September 6, observed that the current fluctuations in yields have resulted in a phenomenon known as “bear steepening” of the yield curve. Historically, This development has presented a more demanding landscape for risk-averse assets like Gold. However, as stated in the report, it is essential to note that there is an anticipation of a deceleration, a circumstance in which Gold has exhibited a favorable historical performance.

The Technical Perspective on Gold

Notwithstanding the observed decrease during the initial portion of the week, it is noteworthy that the Relative Strength Index (RSI) indicator, as depicted on the daily chart, maintained a position above the 50 threshold. This particular occurrence indicates the sellers’ apparent reluctance to engage in substantial selling activity. Furthermore, the XAU/USD currency pair experienced a resurgence after it examined the 200-day Simple Moving Average (SMA) in the vicinity of $1,920.

The immediate resistance level ahead is observed at $1,930, corresponding to the 50-day Simple Moving Average (SMA) and representing the descending channel’s upper limit. The $1,950 barrier, which coincides with the 100-day SMA and the Fibonacci 23.6% retracement of the latest uptrend, is also noteworthy. Should the daily close surpass the threshold, it may attract supplementary market participants and facilitate XAU/USD in pursuing the $1,980 mark, a fixed significance level.

Suppose the price of Gold descends beneath the $1,920 mark, representing the 200-day Simple Moving Average (SMA), and subsequently establishes this level as a point of resistance. In that case, it is plausible to consider $1,900 as a psychological threshold and $1,890 as a Fibonacci 38.2% retracement as potential subsequent objectives in a bearish trajectory.

A Survey on the Outlook for Gold

The forecast indicates a modestly bullish inclination shortly, with the one-week average target at $1,937. The projected one-month outlook exhibits a predominantly optimistic sentiment, as shown by a consensus among various industry professionals who participated in the survey. These experts anticipate a potential upward trajectory for XAU/USD, expecting to reach or surpass the $2,000 mark within the specified timeframe.

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Leon Kramer

Leon Kramer

Leon Kramer, a renowned financial author, enlightens Main Forex News readers with his deep understanding of currency markets. His years in global finance, combined with an intuitive grasp of trends, delivers insightful, up-to-the-minute foreign exchange analysis.

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