Key Insights
- Gold price is consolidating near $2,500, supported by dovish Fed expectations and risk-averse market sentiment.
- China’s softer inflation data and expectations of stimulus measures are providing additional support for gold.
- The upcoming US CPI data is crucial for determining gold’s next directional move and potential Fed rate cut size.
Gold Price Fundamental Outlook
Gold price is consolidating just below the pivotal $2,500 level as traders await key US Consumer Price Index (CPI) data later this week. The precious metal is finding support from a risk-averse market environment, despite a rebound in US equity futures.
In China, softer-than-expected inflation data has raised concerns about demand in the world’s largest gold consumer. The August inflation rate grew by 0.6% year-over-year, falling short of the 0.7% forecast. This development has fueled speculation about potential stimulus measures from Chinese authorities, which could bolster the non-yielding metal’s appeal.
Meanwhile, increased bets for a substantial Federal Reserve rate cut this month are underpinning gold’s bullish outlook. However, a modest uptick in US Treasury bond yields, driven by improving US stock futures, is providing some support to the US Dollar and potentially capping gold’s recovery.
Friday’s disappointing US labor market report initially weakened the dollar, with Nonfarm Payrolls rising by only 142,000 against an expected 160,000 gain. Nevertheless, the greenback staged a late comeback as the discouraging data reignited economic downturn concerns, triggering a sell-off in US stocks and boosting safe-haven demand for the dollar.
Looking ahead, gold prices may continue to trade within a range until Wednesday’s US inflation data release. This report will be crucial in determining the magnitude of the upcoming Fed rate cut and could significantly impact both the US Dollar and gold prices.
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Gold Technical Analysis
From a technical perspective, gold’s short-term outlook remains constructive as long as it holds above the 21-day Simple Moving Average (SMA) at $2,498. The 14-day Relative Strength Index (RSI) is rebounding above the 50 level, lending further credence to the bullish potential.
A daily close above the $2,500 threshold is critical for strengthening gold’s bullish bias. If achieved, the next resistance lies at the record high of $2,532, followed by the psychological $2,550 level.
Conversely, if gold faces rejection near the $2,530 supply zone, a correction could ensue. A daily close below the 21-day SMA at $2,498 would likely challenge the previous week’s low of $2,472. Should selling pressure intensify, the symmetrical triangle resistance-turned-support at $2,459 becomes a critical level to watch, as a break below could trigger a sustained downtrend.
