Gold, XAU/USD, Crude Oil, US Dollar, CPI, Technical Outlook - Talking Points
- Gold prices weighed down by higher oil prices, strong US Dollar
- All but an extremely strong CPI print unlikely to support bullion
- XAU/USD prices primed to drop if 200-day SMA gives way
Gold prices continue to languish despite an increase in market volatility. A stronger US Dollar and rising oil prices weighed on the yellow metal. Economists and big banks are split on the odds of a recession, but current economic indicators around the labor market and elsewhere remain solid. The Atlanta Fed GDPNow real GDP estimate for the second-quarter growth is at 0.9%. The uncertainty is driving strength in safe-haven assets, including the US Dollar. A stronger Dollar works against bullion prices.
Higher oil prices help support inflation expectations, which cause traders to ditch government bonds, pushing rates higher. A rise in oil prices helps to support inflation expectations, at least in the near term. The Fed is focused largely on inflation, with oil prices being a key component of market-based inflation bets. That said, if oil continues to rise it, would likely work against gold prices.
The next update in the US inflation story comes Friday when the consumer price index (CPI) is set to cross the wires. Friday’s CPI data may have little influence on the Fed’s path forward, given that the June and July meetings have been clearly telegraphed. However, a much hotter-than-expected print may firm up bets later this year, especially if the print drives farther-dated inflation expectations higher, causing expectations to become unanchored, which would attract a reaction from the Fed.
XAU/USD Technical Forecast
Gold prices sit just below a key trendline from 2021 and the 61.8% Fibonacci retracement. Directly below sits the 200-day Simple Moving Average. A drop below that SMA could open the door for prices to fall to the psychologically important 1800 level.
XAU/USD Daily Chart
Chart created with TradingView
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--- Written by Thomas Westwater, Analyst for DailyFX.com
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