Gold Outlook: CPI Incoming Rates at a Glance
Gold closed the previous week in red territory but overall maintained its broader sideways movement that it had been moving in for the past few months. Gold traders continue to closely monitor economic and geopolitical developments around the world as they may prove essential in identifying market movements or trends. In this report, we aim to highlight the most important issues currently surrounding the gold market while at the same time providing an analysis of the price of gold from a technical perspective.
Over the past week, the most important economic event has been the U.S. jobs report for the month of March, which provided, from our perspective, some positivity for the U.S. economy. . According to official figures released on April 1, the US economy created 431,000 jobs in March and the unemployment rate fell by 0.2% to 3.6%. Unemployment is currently at pre-pandemic levels, showing strong job growth and continued economic recovery. We should note that gold was trading lower all day and even though it moved sideways after the report was released, it ultimately closed the day lower. Gold’s reaction to the news could imply that positive economic data tends to drive selling interest in the metal. Instead, positive economic data from the United States could favor the USD index which was up on the day. Still, confirmation that the job market continues to tighten and inflation is at record highs appears to encourage some FOMC members to back a double rate hike (0.50%) in the month ahead. While the gold market expects the Federal Reserve to raise rates in the future, markets may be in a period of adjustment right now and may increase volatility significantly in the near future.
Furthermore, US Treasury yields continue to rise, which could make the gold market unattractive for traders. Non-performing bullion could be forced into moderate price action as Treasury yields rise.
Additionally, tensions with Russia’s war in Ukraine seem to linger and nations are being forced to come together with more sanctions. As the situation continues, we could not rule out the possibility of an unexpected movement in gold prices should the situation worsen further. Furthermore, another topic that could be important for the gold market remains the fact that the Chinese province of Shanghai has extended the containment measures in recent days. The closures could impact production at Chinese factories and possibly other international markets.
In the days ahead, three economic events in the United States stand out in our view and could create notable volatility for gold prices. First on Wednesday, April 6, the FOMC meeting minutes may provide further insight into the pace of future rate hikes which, depending on the actual outcome, may move the gold market accordingly. . On March 7, we get the initial unemployment claims figure for the week. Still, the key event for the next seven days is the release of US inflation data for March on April 12. CPI rates have traditionally moved gold prices as the metal’s volatile nature can be used as a hedge for higher prices. CPI rates can create intense volatility across the board when released, so caution is advised.
XAUUSD H4 chart
Right now, gold is trading between our resistance level (R1) 1950 and our support level (S1) 1905. The (S1) hasn’t been crossed since late February, proving that this is a pretty strong support line for traders to consider. The (R1) has been used as resistance on several occasions since March 15 and was only breached between March 24 and 28 when price action surged just below the resistance barrier (R2) from 1975 but has not clearly tested it. In general, the range between resistance (R2) 1975 and support (S1) 1905 is critical to us, hence highlighted on our chart. If this range is breached to the upside, we could see the formation of a strong buying trend. In the opposite direction, if the breakout is on the downside, it could signal strong selling interest. In the scenario where buy orders are in excess, we might see traders targeting the 2000 (R3) level which is our highest resistance level. In case of a selling trend extending into the following sessions, we could see a test of the (S2) 1880 level first and then the (S3) 1850 barrier come into play. In our view, the precious metal continues to rise trading sideways and the RSI indicator below our chart seems to support this view as it is currently moving above the 50 level.