Gold prices climbed 1% on Friday, poised to close the week with a modest 0.20% gain. While the US dollar strengthened, supported by higher Treasury yields, bullion remained resilient amid mixed economic signals.
The latest US Producer Price Index (PPI) data came in slightly above expectations, indicating that inflation is moderating but remains stubbornly above the Federal Reserve’s target. Meanwhile, the University of Michigan’s Consumer Sentiment survey underscored growing concerns about rising living costs.
Despite the upward pressure on Treasury yields, with the 10-year note reaching 4.081%, gold prices continued to find support as investors anticipate potential interest rate cuts by the Fed later this year. The central bank’s pivot towards a more dovish stance could provide a boost to gold, which typically benefits from lower interest rates.
Gold Market Fundamentals for the Week
Gold prices finally breached the $2,650 level this week, but sustained gains will depend on a daily close above this resistance. A successful break could propel prices into the $2,650-$2,685 range.
The US dollar strengthened slightly, as reflected in the 0.02% increase in the US Dollar Index (DXY) to 102.90.
Inflationary pressures persisted, as evidenced by the September US Producer Price Index (PPI) rising by 1.8% year-over-year (YoY), surpassing expectations. While core PPI also increased, monthly data showed a decline, suggesting a potential cooling in inflationary trends.
Consumer sentiment weakened according to the University of Michigan (UoM) survey, indicating growing concerns about the economy and rising inflation.
The prospect of further interest rate cuts by the Federal Reserve has been reinforced by recent economic data, including the slightly higher Consumer Price Index (CPI) and the weak US employment report. Investors are now pricing in 49 basis points of easing by the end of 2024.
Technical Outlook on Gold
The gold market (XAUUSD) has exhibited a sustained uptrend since July. While last week saw a temporary downturn, the market ultimately found support near the $2,600 level and resumed its upward trajectory.
However, a resistance level formed at $2,673.18 during the previous week, which previously capped the market’s ascent. As the market now attempts to break above this resistance, it will be crucial to observe whether bullish sentiment can overcome this hurdle.
Historically, the gold market has demonstrated a tendency to break free from consolidation at significant price levels, leading to further upward momentum. Therefore, a breakout above the $2,673.18 resistance could attract increased bullish interest.
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