Golden Prospects: Gold’s Fate Hangs On Inflation Report. 

The Gold Spots’ (XAUUSD) spectacular recovery is under pressure ahead of the US inflation report due later on Wednesday. The non-yielding bullion has closed three consecutive sessions in the green as the weak economic data from the US, and the recent dovish remarks from Fed officials continued to weigh on the US dollar, boosting the dollar-denominated commodity. 

The US Dollar is facing downward pressure this week after various Federal Reserve policymakers signalled that the current monetary policy tightening might be coming to an end, with Reserve Bank of Cleveland President Loretta Mester hoping for at least two more hikes. The shift towards a more dovish stance by the Fed has also led to a decline in US Treasury bond yields across different maturities. The anticipation of easing inflationary pressures is also weighing on the greenback, boosting gold. 


The 4H chart shows that index futures have recently broken above a falling wedge trading pattern. However, the chart also shows that the yellow precious metal’s price action has found resistance at the 61.80% Fibonacci retracement level ahead of the inflation data from the US, which could have a significant impact on the commodity’s direction in the coming sessions. 

Signs of cooling inflationary pressure would boost the non-yielding bullion’s appeals and help the bulls maintain the recent momentum. Thus a short-term trading opportunity could exist as the price action breaks above the golden ratio towards the next resistance level at $1956.65/ounce. This is a key level, and a break above this level would act to confirm the bulls’ dominance. The bulls could then target the next resistance level at $1969.72/ounce. 

However, a hotter-than-expected inflation report would leave the potential for a significant selloff firmly in play, with the 50-SMA (blue line), which is a key moving average that could act as support. A break below the level would leave the $1912.52/ounce price level likely to act as a level of support, and if the bears are able to break below this level, they could target the support at $1892.92/ounce, which is a four-month low. 


The outlook for the gold spot price’s recent bullish run is under pressure ahead of the US inflation data. However, if the data shows that inflationary pressures are easing, gold prices could break out to new highs, with the $1956.65/ounce resistance level likely to act as the initial target for bulls. 

Sources: TradingView, Reuters, Trading Economics, CNBC. 

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