Current setup
Bias: cautiously bearish in the near term, but geopolitically supported.
Gold initially sold off sharply following the strong August US jobs data. However, it recovered just as quickly, closing the previous week at 4427.90, representing a weekly loss of 0.58%. The robust NFP report raised expectations of a Fed rate hike, as Treasury yields surged and propped up the US Dollar while pressuring the non-yielding yellow metal.
This Monday, gold has shed some weight from Friday’s close and presently trades at $4403 as of writing. This comes as Asia awakes to the strong jobs report despite the US market being closed for the Labor Day holiday.
The resurgence of USD buying comes in a week where the latest consignment of inflation data will hit the newswires. Gold price is currently trading within an environment dominated by bearish pressure from rising US bond yields amid Fed rate-hike expectations and some safe-haven demand due to the Middle East geopolitical conflict.
Gold Price: Macro Drivers
1) Fed rate expectations
Stronger US employment has reinforced the recent hawkish tilt of the Fed, which was showcased at the Jackson Hole symposium by the Fed Chair Kevin Warsh. Higher interest rates and rising US Treasury yields raise the opportunity cost of holding gold, since investment funds will prefer to benefit from yield increases rather than remaining stagnant in the non-yielding metal.
Rising US bond yields + ↑ Fed hike expectations = Gold pressure.
2) US-Iran Tensions
Safe-haven demand due to the ongoing geopolitical standoff amid renewed tensions surrounding the status of the Strait of Hormuz remains intact. However, higher energy prices exert an inflationary impact, further cementing expectations of tighter monetary policy. This is why gold has traded mostly in a two-way consolidation with a wide range in between both extremes.
3) Upcoming US Inflation Data
The upcoming US PPI and CPI data will be instrumental on whether the markets will further reprice Fed-hike expectations. The PPI is more directly sensitive to the geopolitical situation because of direct cost impacts of high energy prices on company margins. By the time this is shifted to consumers, the CPI starts to gain importance. At this point in time, the markets are now looking for confirmation that consumer prices are heating up, which makes a September Fed rate hike almost a certainty.
Hot CPI → USD/yields rise → Gold falls.
Soft CPI → Fed expectations ease → Gold rises
Gold Price: Weekly Forecast Scenarios
Base case: Gold price action is expected to stay volatile, albeit with a modest bearish bias as traders await the US inflation data for validation or rebuttal of the September Fed-hike expectations.
Bull case: softer US inflation numbers will lead to a weaker dollar, allowomg gold prices to recover strongly. Remember that gold remains in a long term uptrend.
Bear case: Hotter-than-expected CPI data will lead to a rise in US Treasury yields, which puts further downside pressure on gold prices.
Gold Price: Technical Outlook
Gold price remains in a consolidation between 4449 and 4361. An uncapping of the former brings in the technically significant high of 3 September at 4509 as the next resistance of note. Above this level, 4567 is the next target to the north.
On the flip side, a breakdown of 4361 brings in the prior lows of 10 August and 13 August at 4314 into the mix. Below this level, the 6 August low at 4225 becomes the next target to the south.