Gold forecast: Metal aims to recover with core PCE data on tap

In today's gold forecast, we're witnessing a small rebound not only in gold prices but also across various asset classes, including the major European stock averages while yesterday saw crude oil recover strongly to close around 1% higher. This comes on the heels of yesterday’s US data indicating a slowdown in inflation, coupled with unexpected gains in GDP and core durable goods orders, easing some demand worries. Additionally, China's central bank took the market by surprise again this week with an unplanned lending operation at significantly lower rates. These stimulus measures by the PBOC aim to bolster an economy that has been losing steam. Collectively, these developments have helped to ease demand concerns, subsequently reducing pressure on metal prices.

Why did gold prices fall this week?

I think the biggest influence on metals prices have been the sudden drop in all sorts of risk assets. After all, gold has been trending positively with indices in recent years. But I think the downside is limited and would expect to see the bullish trend resume soon. Today’s mixed-to-weaker US data suggests inflationary pressures and economic activity are waning, paving the way for the Fed to cut rates twice this year. What’s more, the PBOC has also been at it this week, cutting interest rates. As global central banks ease their policies, this should help to support low- or zero-yielding assets on the dips.

Attention turns to US Core PCE data

Later on, we will have the Fed’s preferred inflation gauge, the core PCE price index seen printing 0.2% month over month or 2.5% year-over-year, down from 2.6% previously. However, judging by yesterday’s release of weaker GDP deflator and the drop in GDP core PCE prices, this suggests the possibility of a larger-than-expected decline in today’s core PCE data. If so, this would further boost the chances of a September rate cut, and potentially support gold prices.

Gold forecast: looking ahead to next week

In the week ahead, we will have a few major macro events that could impact the near-term gold forecast. Among them, here are the three major highlights:

BoJ policy decision

Wednesday, July 31

The yen roared back amid the unwind of carry trades in recent weeks, supported by the narrowing of yield spreads between Japanese bonds and those of other countries. As many central banks begin or prepare to implement rate cuts, Japan has only recently started to tighten its monetary policy. In the upcoming Bank of Japan meeting, speculation is growing that the central bank might raise interest rates by ten basis points. This has the potential to move the USD/JPY sharply, which should impact gold prices given they are priced in US dollar.

FOMC policy decision

Wednesday, July 31

The recent weakness in US data has led to calls for the Federal Reserve to expedite rate cuts. The sharp steepening of the US yield curve indicates market anticipation of more aggressive rate cuts. The market-implied probability of a rate cut at this meeting is only 10% meaning any unexpected decision by the Fed could boost stock prices significantly. The more likely scenario is that the Fed prepares the market for a September cut, possibly followed by another before the year is out. If the Fed is dovish, then this should be good news for gold, while a hawkish Fed is what the gold bears would be hoping to see.

US non-farm jobs report

Friday, August 2

The unemployment rate has been steadily rising and the pace of job gains have slowed with other labour market indicators also softening in recent months. If this trend continues, it will only cement expectations of a September rate cut, potentially undermining the dollar and underpinning gold.

Gold forecast: technical analysis

Source: TradingView.com

The technical XAUUSD forecast still remains bullish given that it hasn’t broken its series of higher highs and higher lows, even if it has struggled to hold the more recent breakout attempts. Short-term support at $2360 needs to hold to prevent a deeper correction. This level converges with the bullish trend line. Below here, the next key support is around $2300. Short-term resistance comes in around $2390.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R