Gold weekly forecast: Powell pivot to power fresh record highs?

• Fed rate cut expectations are heavily influencing gold
• Jerome Powell speaks Monday. He may set the tone for remaining FOMC members
• US retail sales, ECB rate decision, China Plenum and Republican Convention are other key events
• Buying dips preferred to selling rallies

Great rates expectations

Fed rate cut expectations are back driving the gold, making it a relatively easy task of knowing what to focus on in the week ahead. Anything that can shift those expectations. The challenge is knowing how they may evolve given multiple cuts are already factored in over the remainder of the year.

If I sound confident about what’s influencing the gold price, it’s because it’s obvious in the recent price action with incredibly tight inverse correlations witnessed with US rates markets over the past fortnight on a daily timeframe, especially the front end of the curve.

This chart underlines that point.

Source: TradingView

The rolling 10-day correlation between gold and Fed rate cut pricing in the year ahead sits at 0.96 (blue line), the same as with US two-year bond yields (red line). That means when yields decline or are expected to decline, gold has almost always risen, and vice versus. Gold has also had a strong inverse relationship with the US dollar index (DXY, black line) over the same period, sitting at -0.8.

I’ve also thrown gold’s correlation with silver (grey line) to show how tight it’s been over the last two weeks. That means much of what's been said about gold can be applied to silver.

Event risk management

Unless we get an abrupt shift in focus away from rate cut expectations, it means we can narrow down what events are important for gold next week. This calendar shows the key data releases to look out for. Times shown are for US Eastern Daylight.

Source: Refinitiv 

You might notice there’s not a lot of top tier US data to navigate. Retail sales will give us clues on the health of the key household sector while jobless claims will be one of the first indicators that will show a deterioration in the US labour market, when if and when it comes. I’d ignore the decline in claims last week – it was impacted by the Independence Day holiday which often creates volatility in the series. Elsewhere. forward looking surveys will garner attention given the darkening economic backdrop. 

Outside the US, UK inflation may influence global easing expectations. So too the ECB rate decision on Thursday. It’s not expected to cut move but watch the statement and commentary from Christine Lagarde for hints on what it may do with rates next. The influence will extend beyond Europe.

While it’s not listed, headlines from China’s Third Plenum are important, especially if they bolster confidence about a pickup in the world’s second-largest economy. Separately, the Republican National Convention starts on Monday – it too could shift rates pricing.

Powell pivot incoming?

Perhaps the most important event comes from the FOMC speakers’ calendar with Chair Jerome Powell chatting with Bloomberg’s David Rubenstein at midday EDT Monday. The big dog will likely set the tone for what we hear from other FOMC members later in the week. It’s important.

Gold looking good for bulls

From a technical perspective, things are looking good if you’re a gold bull.

As the time of writing in late Asian trade on Friday, it’s holding minor support after breaking to multi-month highs on Thursday following the weak US inflation report for June. Below, it found support at uptrend support on multiple occasions over the past fortnight, making that a descent entry level for longs on dips towards the level. Other support levels to note include $2393 and $2348.21.

Aside from Thursday’s peak above $2420, there’s not a lot of visible resistance between here and the record high of $2450.70. Given bullish signals from MACD and RSI on price momentum, buying dips is preferred to selling rallies in the near-term. Good luck!

-- Written by David Scutt

Follow David on Twitter @scutty