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Gold price has wavered this week as investors wait for the upcoming statement by Jerome Powell and US consumer inflation data. It was trading at $2,360 on Tuesday, a few points below its all-time high of $2,452.
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Weak US macro data
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Gold has moved sideways after the US published a series of weak economic numbers last week. A report by the Institute of Supply Management (ISM) showed that the manufacturing and non-manufacturing PMIs dropped to the contraction zone in June.
Another report by the Bureau of Labor Statistics (BLS) showed that the labor market was softening. First, the BLS downgraded its May estimate from over 304k to 218k. The latest report showed that the economy added 206k jobs in June.
The unemployment rate rose from 4.0% in May to 4.1% in June, higher than the expected 4.0%. Also, the average hourly earnings softened to 0.3% (MoM) and 3.9% (YoY) from the previous 0.4% and 4.1%.
Therefore, these numbers have seen many economists adjust their rate cut estimates. Some, including Mohamed El-Erian, have advocated for swifter rate cuts because the economy is slowing.
Gold and other precious metals like silver do well when the Federal Reserve is cutting interest rates. That’s partly because signs of a dovish Fed lead to a weaker US dollar. Indeed, the dollar index (DXY) has dived from last month’s high of $106.10 to the current $105.05.
US inflation data ahead
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The next important catalyst for the gold price is the upcoming Jerome Powell testimony on inflation in Congress. His statement will provide more information about the Federal Reserve and when he expects to start cutting rates.
In his recent statements, Powell has insisted that the economy was strong and the Fed would continue its patience when determining when to start cutting interest rates. That statement has been perceived to be highly hawkish.
The other important XAU/USD news will be the upcoming US inflation data scheduled on Thursday. This is an important report that forms part of the Fed’s dual mandate.
Economists expect the data to show that the US inflation continued to drop in July, a move that the Fed will welcome. If these estimates are correct, they will see the price of gold continuing to rise.
US debt and politics
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The gold price has done well this year as traders focus on the next key events in the United States, which is preparing an election. It is still unclear whether Donald Trump will phase off with Joe Biden or another Democratic candidate.
What is clear is that whoever the president will be, the US public debt will continue soaring. Data shows that the US has over $38.88 trillion in debt or over $266k per taxpayer.
The government will continue this spending, which could see the country face major difficulties in the coming years. For example, the net net interest on debt has jumped to over $888 billion.
The soaring debt has led to more countries buying debt. China, Saudi Arabia, Egypt, South Korea, and France are leading this demand.
Gold price technical analysis
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Gold chart by TradingView
Turning to the weekly chart, we see that the price of gold has been in a long-term bull run as it jumped from $1,050 in 2015 to almost $2,400 today. It has risen above the crucial resistance point at $2,067, its highest point between 2020 and 2023. This was an important level since it was the upper side of the inverse head and shoulders pattern.
Gold has also remained above the 50-week and 100-week Exponential Moving Averages (EMA) while the Relative Strength Index (RSI) has formed a rising wedge pattern. Therefore, the gold’s outlook is neutral, with the next point to watch being at the YTD high of $2,450. A break above that level will point to more gains as buyers target $2,500.
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