Gold (XAU/USD) is trading slightly above $2,300 in the early European session on Friday, following a directionless performance from Asian markets overnight. Mixed signals from the US regarding future interest rate paths, a key factor for Gold, continue to create uncertainty.
Gold Rangebound Amid Uncertainty Gold remains stuck in familiar territory as traders grapple with conflicting signals, particularly concerning US interest rates. While disinflationary economic data suggest potential rate cuts, cautious behavior from central bankers adds to the uncertainty. Lower interest rates typically boost Gold by reducing the opportunity cost of holding the non-yielding asset, but the timing and extent of these cuts remain unclear.
Thursday’s disinflationary US Producer Price Index (PPI) data, indicating reduced inflationary pressures, bolstered expectations for near-term rate cuts by the Federal Reserve (Fed). However, the Fed’s recent downward revision of expected 2024 interest rate cuts, from three to one, and Chairman Jerome Powell’s cautious remarks following the Consumer Price Index (CPI) release underscore a data-dependent approach.
Gold prices surged over half a percent to $2,342 after the CPI release but retreated on the Fed’s cautious stance. Robust US Nonfarm Payrolls (NFP) data, indicating a strong labor market and rising wages, suggest continued inflationary pressures, potentially keeping interest rates high.
The People’s Bank of China’s (PBoC) halt in Gold purchases between April and May, the first in 18 months, added to the mixed signals. However, Citibank analysts highlight strong consumer demand in China, which could support higher Gold prices.
Traders now await the preliminary Michigan Consumer Sentiment Index for June from the US, due on Friday, for further guidance.
TECHNICAL ANALYSIS: BEARISH HEAD-AND-SHOULDERS PATTERN
Gold appears to be forming a bearish Head-and-Shoulders (H&S) pattern, which typically signals a trend reversal. The pattern’s neckline is at the $2,279 support level. A break below this level could activate downside targets of $2,171 and $2,106, calculated using Fibonacci ratios and the pattern’s height. Conversely, a break above $2,345 would invalidate the H&S pattern, suggesting a potential rise to $2,450.
