Inflation Data and Middle East Tensions to Drive Gold Prices
Gold has recently experienced a dramatic rebound after seeing a sharp drop at the start of this week. The price of the metal has stabilized above $2,400 and at present, investors are waiting for US inflation figures to be released in July. Consumer Price Index (CPI) is anticipated to go up 0.2% month-on-month while core CPI will increase by 0.2% during this same period.
Inflation data due next has shifted the market’s attention which may give insights into Federal Reserve interest rate decisions going forward. Unexpectedly high CPI reading might trigger a reconsideration of the chance of a fifty basis points rate cut in September thereby strengthening USD that will possibly have an impact on gold prices again. Conversely, an outcome either meeting or falling short of market expectations would weaken USD thus creating room for further gains in gold.
Investors, apart from inflation reports, will also closely monitor geopolitical developments especially escalating tensions between Iran and Israel. Traditionally gold has been seen as a safe-haven asset amid times of geo-political uncertainty but recent market activity shows that normal correlations are breaking down
Looking at it from a technical perspective though, gold’s RSI has moved closer to 60, which indicates some reluctance by sellers. The metal is currently testing the upper border of an ascending regression channel with immediate resistance at $2,470-$2,480 levels. A breach above this region has the potential to test the psychological $2,500 mark and then move up to the high limit of the upward regression channel at about $2,580.
On the downside support lies at $2,410 – 2,400 and below that 50-SMA on a daily chart stands around $2,370 followed by 100 SMA (D) traced near $2,350. In summary however technically speaking gold still looks strong with gold set to continue its upward journey provided there are no major shifts in market sentiment.
In conclusion Gold prices could be affected by U.S inflation data and Middle-East political developments. The CPI release will be closely watched for signs of inflationary pressures that can affect FOMC monetary policy decisions towards influencing gold prices too through interest rates changes. Looking ahead one more spike up may occur if indeed dollar continues to weaken because of technicals surrounding this precious metal are constructive.
