Gold prices even managed to lure in fresh buyers during the Asian session on Wednesday where prices rebounded back above the $3,340 mark. Traders are reacting to the seismic shift in geopolitics. They’re looking ahead to key economic data from the United States, after a day of mostly range-bound price action.
For the gold market, the script is being flipped, highlighting the complicated interplay of fundamental factors. Among these are modest strength in the US dollar and growing importance of the US Producer Price Index (PPI). We hope that this report will shape near-term dollar price determined dynamics and thereby thirdarily affect gold prices. As traders continue to weigh these factors, the outlook for gold is cautiously bullish.
Technical Indicators Favor Bullish Outlook
Gold is coming off a strong performance that has now recovered positive momentum after having lost it to earlier volatility. The buyers’ resumption of interest is evident through the price movement above the $3,340 mark. This follows a very robust overnight rebound from roughly the 200-period Simple Moving Average (SMA) on the 4-hour chart. This technical indicator bodes well for bullish sentiment toward gold, as it indicates that buyers are entering the market at key levels of support.
Leading analysts are suggesting that the dollar’s surprising bullish momentum may now hamper any potential XAU/USD rallies. This just happens to be right before key US inflation data is released. The near-term obstacles for gold are located between $3,352 and $3,353. Any breakout past this range can confirm a bullish sentiment. As long as this momentum continues to push prices, the next target is $3,377, $3,378 and after that, the psychological level of $3,400.
If gold gets weak and goes below the $3,323-3,322 range, more buyers will likely step in. They will want to pull that value down to at least $3,300, if not lower. A deeper drop under $3,288-$3,287 would change the tune back in favor of bearish market players. In this latter case, prices might be attracted to monthly swing lows near the $3,245 area.
Geopolitical Risks Drive Safe-Haven Demand
Recent geopolitical events have greatly impacted gold prices as investors flee to safe-haven assets during times of crisis. The ongoing bombardment of the Gaza Strip by Israel and recent strikes in Ukraine’s Kharkiv region by Russia have heightened uncertainty in global markets. These advancements push safe-haven flows to gold, which is historically considered a secure investment during times of unrest.
The US dollar has enjoyed some modest strength as of late. It remains bottled up in a well-known band just over its 3-week low. Relative stability of the dollar may curtail gold’s upside. If geopolitical tensions do widen or deepen, the demand for gold as a safe haven will surely surge.
Beyond those geopolitical concerns, the strength of the labor markets has been a key talking point from the investors’ standpoint as well. The surprise upside in the US Nonfarm Payrolls number reported last Friday continues to point towards a still strong labor market. This data has led many investors to reconsider their expectations for an imminent interest rate cut by the Federal Reserve.
Economic Indicators Set to Influence Market Trends
Traders are anxiously awaiting the release of the US Consumer Price Index (CPI) report later today. Markets are particularly keen on how this new overall economic bellwether will affect the Fed’s guidance on future rate hikes. Beyond CPI, the most important report this week will likely be Thursday’s PPI report. It is going to make for an interesting near-term dynamic for the USD and gold prices, that’s for sure.
In fact, markets are only pricing in two rate reductions by year’s end. The market impact From investor enthusiasm, there is the danger from expectation – undermining these highly-anticipated economic reports and potentially increasing volatility in currency and commodity markets. Any further positive CPI reading would be likely to strengthen the dollar further and take gold prices down in the process. On the other hand, softer-than-expected inflation data could boost the allure of gold as an alternative investment.