Gold Outlook: Traders Await Next Key US Economic Indicators

Gold’s price tended to move lower since our last report. It seems as if the market remains uncertain and is currently looking for a new direction. Today we are to discuss the fundamental challenges laid ahead for the precious metal, while we will be concluding this report with a technical analysis of gold’s daily chart.

Last week’s financial releases

It should be noted that the negative correlation of the USD with gold’s price seems to have re-emerged since our last report. The release of the US December Retail sales rates tended to highlight the continued resilience from the consumer side of the economy in the US. In particular, the Retail sales rate came in at 0.6%, implying that the US economy is faring better than expected which could potentially lead to higher inflationary pressures in the long run, as consumer spending remains relatively high. Furthermore, the weekly initial jobless claims figure in conjunction with a better-than-expected University of Michigan consumer sentiment figure for January, tended to highlight that the labour market remains relatively tight and consumer sentiment for the current economic conditions remain optimistic.

As such the financial releases last week tended to highlight the concern about persistent inflationary pressures, which may aided the dollar and weighed on gold, given their inverse relationship with one another. Yet, we note our concerns about the US economy, as the Philadelphia Fed Manufacturing Index figure for January came in at -10.6. The lower-than-expected figure, tended to highlight that the manufacturing industry, may be facing some headwinds and thus could cast some doubt over the US’s economic resilience. In conclusion, some cracks in the economic armor of the US may be appearing, but the possibility of a ‘soft landing’ appears to be on the menu and thus, could support the dollar, whilst weighing on the precious metal.

Next big test for Gold

Gold Market participants may be eagerly waiting for this week’s financial releases stemming from the US. In particular the release of the US Preliminary GDP rate for Q4 on Thursday and the Core PCE rates on Friday may heavily influence the direction of gold’s price. The Preliminary GDP rate for Q4 is expected to come in at 2.2%, implying that the US economy is growing, but at a slower rate when compared to the previous quarter. Moreover, the Core PCE rates on a yoy level for December, which are the Fed’s favourite tool for measuring inflationary pressures, are anticipated to showcase easing inflationary pressures in the US economy.

Therefore, should both financial releases come in as expected or lower, we could see an increase in pressure on Fed policymakers to break away from the bank’s narrative of high rates for a longer time period, whilst boosting optimism that the Fed may embark on easing monetary policy.

As such, should we see the market’s expectations for an extensive rate-cutting monetary policy by the Fed the year increasing, it could weigh on the dollar whilst providing support for the precious metal’s price. On the other hand, should they come in better than expected, implying persistent inflationary pressures, it could provide support for the USD and weigh on gold’s price, as the Fed may have to maintain its current restrictive monetary policy for a prolonged period of time.

Gold: Technical Analysis

XAUUSD Daily Chart

• Support: 2005 (S1), 1975 (S2), 1945 (S3)
• Resistance: 2035 (R1), 2064 (R2), 2088 (R3)

On a technical level, we note that gold’s price seems to be moving in a sideways fashion, having bounced off the 2005 (S1) support level and having failed to break above the 2035 (R1) resistance line. We tend to maintain a sideways bias for the commodity and supporting our case is the RSI indicator below our chart, which currently registers a figure near 50, implying a neutral market sentiment.

For our sideways bias to be maintained, we would like to see gold remaining confined between the 2005 (S1) support level and the 2035 (R1) resistance line. On the other hand, for a bearish outlook, we would like to see a clear break below the 2005 (S1) support level, with the next possible target for the bears being the 1975 (S2) support base. Lastly, for a bullish outlook, we would like to see a clear break above the 2035 (R1) resistance line, with the next possible target for the bulls being the 2064 (R2) resistance ceiling.

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