Gold outlook: Metal probes resistance as dollar, yields fall

Gold was up a touch at the time of writing but was off its earlier highs. Silver had turned negative having been higher earlier. So, that’s not a great sign for the near-term gold outlook. Still, with the dollar easing, there is hope. Wednesday’s release of US CPI is eagerly anticipated.

What supported gold prices?

We have seen bond yields decline at the start of this week, with investors potentially anticipating a weaker inflation report on Wednesday. This has reduced the opportunity cost of holding gold over bonds slightly. Other than that, gold was probably helped along by the weakness observed in the dollar, especially in the pairs like the USD/JPY and USD/CHF, while short-side profit-taking is an additional reason behind its small gains.

All told, gold is not out of the woods just yet, with many major central banks still tightening policies. The Fed is now almost certain to hike rates one more time at least in July. Investors are obviously looking beyond the summer and wonder whether and how fast interest rates will fall again. A lot will depend on the direction of prices and Wednesday’s CPI report will therefore be very important.

The greenback’s overall weakness on Tuesday suggests investors are possibly expecting to see a weaker-than-expected CPI report on Wednesday and, in any case, a 25 bps rate hike is now fully priced in.

The inflation report is expected to show that consumer prices cooled to 3.1% annual pace in June. The actual reading will need to be substantially below 3% for the odds of a 25-bps hike to fall meaningfully from the current level of around 95%.

Gold outlook: technical analysis

The technical gold outlook brightened slightly after prices broke above the falling wedge pattern, which is a bullish continuation pattern. This is the first positive sign in weeks. We will need to see clean break above resistance at $1932ish, where it was trading around at the time of writing.

Meanwhile, gold bears will be looking for signs of bullish trap. If, by Wednesday’s close, we see don’t find XAUUSD well above that $1932 resistance level, then look out below.

Source: TradingView.com

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