Gold prices, as measured by XAU/USD, have had trouble capitalizing on a broader bullish swing. This strong movement helped to bring them near the $4,350 barrier. Throughout Thursday’s Asian session, the sentiment on gold turned negative. This change was driven by increasing instability associated with trade war induced economic anxiety in the US and China.
As traders continued to play the wait-and-see game, the general consensus is that the path of least resistance for gold is still up. This prospective rally runs into sharp headwinds from concerns that the health of the world’s two largest economies are deteriorating. International worries have continued to leave risk sentiment on the back foot. Consequently, gold prices have been supported at times, despite being unable to hold onto bullish moves.
Speculators are sitting on their hands and not willing to cut large positions. Mostly they are on guard ahead of today’s US Consumer Price Index (CPI) report due out later today. This key economic bellwether will help us understand whether inflation is inching upward or on the decline. It would further influence the US central bank’s future monetary policy decisions. With such uncertainty surrounding the reintroduction of the CPI report, it has forced most market participants into a wait and see approach.
Maintaining hold above the ascending 100 Simple Moving Average (SMA) is key to gold’s outlook. A sustained position above this key technical level would very much help to maintain any short-term declines in gold prices strongly supported. An explicit break below the 100 SMA could suggest a more significant retracement in store for gold. This series of actions might well drive prices down in the near term.
The Moving Average Convergence Divergence (MACD) indicator for gold has recently crossed below the signal line. With this change continuing to point in the negative direction, bearish momentum remains intact. The technical signal couldn’t align with the market conditions more. The US dollar’s resurgence halted gold’s recent momentum, but that’s not the only factor complicating gold’s outlook.
Earlier this week, bumping employment data from the US put pressure on gold prices. This led gold to drop to its lowest levels in over a month. Remember, October’s employment numbers included the loss of 105,000 payrolls, due in part to the longest US government shutdown in history. The economic impacts of this shutdown are impossible to overstate. Combined with the unemployment rate ticking up to 4.6% and indications of slowing wage growth, this makes a stronger case for easing from the US central bank.
Today, market analysts predict that the Federal Reserve will begin to ease its policies even more. In the long run, this has the potential to be a gold-friendly environment. Traders might continue to wait on the consumer inflation number before establishing new directional gold bets. The release of next month’s CPI print will be the next major market mover. It has the potential to be even more transformative in the short and medium term.