Gold prices slipped on Friday but remained on track for a third consecutive weekly gain. Traders are navigating the complex landscape of Federal Reserve signals, weaker-than-expected economic data, and key technical levels for direction. The market continues to be buoyed by expectations that the Fed will adopt a more dovish stance as inflation shows signs of cooling.
Dovish Fed Outlook Supports Gold
Gold prices gained momentum this week following softer-than-expected inflation data. The Consumer Price Index (CPI) rose by 0.2% month-on-month and slowed to 3.2% year-on-year, with core inflation also missing expectations. Producer Price Index (PPI) data further reinforced this trend, raising hopes that the Federal Reserve might ease its policy sooner than anticipated.
Fed Governor Christopher Waller fueled these expectations by suggesting that the central bank could implement multiple rate cuts if inflation continues to cool. Futures markets are now pricing in nearly equal odds of two rate cuts before the end of the year. Rate cuts generally benefit gold by lowering the opportunity cost of holding the non-yielding asset, while a weaker U.S. dollar boosts its appeal to global investors.
Treasury Yields Decline, Further Supporting Gold
The drop in U.S. Treasury yields has strengthened gold’s appeal even further. The 10-year yield fell by 13 basis points this week, and the 2-year yield dropped by 10 basis points, signaling increased expectations for a more dovish monetary policy. Lower yields reduce the attractiveness of bonds relative to gold, providing additional support for the precious metal.
Traders are also awaiting housing starts and building permits data, which could offer further insights into the state of the economy. A weak housing market report may reinforce expectations for Fed easing, potentially driving more interest into gold.
Key Price Levels for Gold to Watch
Gold’s immediate resistance is at $2,726.30, a critical level for a potential breakout. A sustained move above this threshold could open the door for a test of the all-time high at $2,790.17. On the downside, support lies at $2,663.40, with the 50-day moving average at $2,645.07 acting as a crucial benchmark for maintaining the bullish outlook.
Gold Market Outlook
Gold remains well-positioned to benefit from a dovish Fed stance and weaker economic data. Sustained support above $2,645.07 will keep the bullish outlook intact, while a breakout above $2,726.30 could trigger further upside momentum.
Traders should closely monitor upcoming economic releases and Fed commentary for fresh insights into gold’s direction. With its role as a hedge against uncertainty and its growing appeal in a low-rate environment, gold remains an attractive investment under current conditions.