Despite a strengthening U.S. dollar, spot gold prices surged nearly 1% this week, reaching record highs. Analyst Eren Sengezer from FXStreet provided insights and predictions for gold's trajectory in the coming week. The technical outlook suggests a continued bullish trend for gold in the short term. Key U.S. economic data set to be released may influence gold prices.
Geopolitical tensions in the Middle East and U.S. election anxiety supported gold's price rise, marking the third consecutive week of gains. Spot gold closed up $11.62 (0.42%) at $2747.38 per ounce on Friday, with a weekly increase of $26.00 (0.96%). On Wednesday, gold hit an all-time high of $2758.45 per ounce.
Next week's U.S. economic calendar includes significant data releases such as the third-quarter Gross Domestic Product (GDP) and October labor market statistics. The Bureau of Economic Analysis (BEA) will announce the preliminary annualized growth of third-quarter GDP. Investors expect a 3% growth, consistent with the second quarter. If the data exceeds expectations, it could boost the dollar and push gold prices lower. Conversely, disappointing GDP data, within the 1% to 2% range, may weaken the dollar.
On Thursday, the BEA will release the Personal Consumption Expenditures (PCE) Price Index for September, the Federal Reserve's preferred inflation indicator. As the GDP report will also include quarterly PCE data, the monthly figures might not significantly impact the market.
The Bureau of Labor Statistics (BLS) is set to publish October's labor market data on Friday. September saw a nonfarm payrolls (NFP) increase of 254,000, far exceeding the anticipated 140,000, which diminished expectations of a 50 basis point rate cut by the Federal Reserve in November. Currently, the market almost fully anticipates a 25 basis point rate cut at the upcoming Fed meeting, with a 70% chance of an additional 50 basis point cut by year-end, according to CME’s FedWatch Tool.
Should the NFP data surprise on the downside, significantly below 100,000, the market might reassess the potential for a substantial rate cut in November or December, putting selling pressure on the dollar and paving the way for a gold rebound. On the other hand, an NFP figure between 180,000 and 220,000 may be seen as satisfactory, prompting the Fed to opt for two 25 basis point cuts by year-end. If the NFP number approaches or surpasses 300,000, investors might question a December rate cut, increasing bearish pressure on gold.
From a technical perspective, Sengezer notes that the daily Relative Strength Index (RSI) for gold, which climbed above 70 earlier this week, has pulled back towards 60, indicating that the bullish trend remains intact after correcting the overbought condition. Gold remains within the uptrend channel established in June.
For gold's downside, initial support is likely around $2700 per ounce, the midpoint of the ascending channel. A break below this level could see support at $2675 (20-day simple moving average) and $2635 (lower boundary of the ascending channel). On the upside, gold might encounter short-term resistance at $2750 per ounce. Clearing this threshold could lead to further resistance at $2770 (upper boundary of the uptrend channel) and $2800 (psychological level).
