Image Source: Pixabay
 

Gold bounced after weakening slightly the day before. The recovery comes after the bullish momentum stalled since Wednesday with the metal unable to push to a new record high, and yet not falling back either. But as the precious metal remains near its recent highs, this is keeping bullish hopes alive that it could still reach and surpass the $3,000 level in the coming days or weeks. The US dollar continues to remain on the back foot and with yields declining and stock markets volatile, it remains an overall positive environment for the safe-haven metal. Traders will continue to monitor the ongoing trade war between the US, and basically the rest of the world, for clues. This week, we will also have important US inflation data, as well as the University of Michigan’s consumer confidence and inflation expectations surveys, for clues on the Fed’s next interest rate decision. If we continue to see weakness in US data, then this is something that could well give the price of gold another lift. Countering this, could be any major de-escalation in the trade war, or progress in peace talks between Russia and Ukraine. These factors could reduce the metal’s haven appeal in favour of the more risk-sensitive stock markets.
 

What’s next after a volatile week for financial markets?

Let’s see what this week brings after a roller-coaster last week for US and global stock markets, which carried onto Monday’s session. Friday saw the major US indices bounced sharply off their lows to end the day on a positive note, as traders tried to make sense of several conflicting headlines about tariffs, while the Fed Chair Jerome Powell said the economy was doing fine despite the release of a weaker than expected jobs report earlier in the day, and several other weaker reports in the prior couple of weeks. There was also an element of an oversold bounce too, to take into account, with reports that Russia was willing to discuss a temporary truce in Ukraine helping the cause. But as the new week started, the selling of stocks resumed sharply on Wall Street. Today’s slightly recovery in the stock markets and weakness in US Dollar Index, counterbalanced to keep gold largely stable. Should market conditions warrant increased haven demand, then this week could see gold potentially break higher.
 

Will this week’s key US data undermine USD and underpin gold?

Gold bulls are eying further declines for US data, as that will likely further undermine the dollar and bond yields, increasing the appeal of the zero- and low-yielding assets like gold and JPY. Last week was the greenback’s worst since November 2022. The US dollar could remain under pressure this week too, as weakening US data raises the prospects of a sooner-than-expected rate cut by the Federal Reserve. A flurry of key economic reports will be released, with at least four major ones demanding attention. Proceedings get underway today with the increasingly pivotal JOLTS job openings data, followed by the all-important CPI inflation report on Wednesday. Thursday sees the release of the latest PPI figures, while Friday rounds off the week with the University of Michigan’s consumer confidence and inflation expectations surveys. 

US inflation has been creeping higher for five consecutive months, leaving the Federal Reserve in a rather awkward position. On one side, economic cracks are beginning to show in certain sectors, yet inflation expectations among consumers are ticking upwards—no doubt stoked by concerns over tariffs and Trump’s tax-and-spend agenda. The pressing question now is whether these rising expectations will translate into sustained inflationary pressures or if softer economic data and falling oil prices have provided some much-needed respite in February. 

The PPI release is also one to keep an eye on, not least because it includes components that feed directly into the Fed’s preferred inflation gauge—the Core PCE Price Index—due later in the month. A stronger-than-expected PPI print could well shift expectations around the Fed’s next policy steps, making this release one to scrutinise closely. 

Once the inflation data is out of the way, attention turns to Friday’s University of Michigan surveys. Last month’s consumer sentiment reading saw a sharp drop, raising concerns over the impact of Trump’s protectionist stance on confidence levels. This survey, which polls around 420 respondents on current and future economic conditions, will be crucial in gauging broader sentiment. Equally noteworthy is the inflation expectations component, which surged last month to 4.3% from 3.3%—a development that could have significant implications for actual inflation trends, and for gold. A figure well worth watching indeed. Part of the reason why gold has risen so much is because of inflation eroding the values of fiat currencies.
 

Gold key levels and trade ideas

After the metal’s first weekly drop after eight consecutive weekly gains, last week was a positive one for the precious metal, potentially a signal to suggest that the uptrend has quickly resumed. On the daily and other smaller time frames gold has retreated from severely overbought levels. But it remains to be seen whether the precious metal will hold onto last week’s gains and add to it, as we have not yet seen a proper correction to work off its severely overbought conditions on the longer time frames with both the weekly and monthly RSI indicators remaining above or around the 70.0 threshold. Regardless of what course it takes in the short term, I continue to expect the metal to eventually rise above the $3K hurdle in the not-too-distant future. In fact, as a long-term gold bull, I would welcome a bit more of the selling as it will allow long-term overbought conditions to be worked off, while also providing a real dip for late-buyers to take advantage of.

(Click on image to enlarge)

Source: TradingView.com

Anyway, short-term support levels to watch include $2900, followed by $2877. A potential break below the latter will bring into focus last week’s low of $2832. And if this level breaks, then the next key support comes in around $2790, marking the high from October.

In terms of resistance levels to watch, well $2930 is an interesting level to watch which has not been taken out in the last 4 trading sessions. Above this level, the $2946-$2950 zone, marking the 161.8% Fibonacci extension of the last significant downswing from October, comes into focus. This area has been tested in recent week, triggering a bit of profit-taking. There are no other obvious short-term resistance levels until the next psychological round handle of $3K.

More By This Author: