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Why Is The Gold Price Poised To Make Huge Moves This Week?
Tue July 09 2024
Gold prices have started the week on the back foot as traders are taking a bit of a cautious approach in the aftermath of the US NFP data, which confirmed one thing very clearly: the Fed is wrong about the US job market—slowdown has begun, and they need to act now before another policy mistake takes place. However, it is not only the labour market that the Fed is concerned about, as there is one important number that will be unfolding later this week and that will very much determine the future of the gold price, not only for this week but in fact for the rest of the month.
Background
On Friday, the US NFP numbers set the stage for market players. Although many market participants were away from their desks and there was less volume in the market in comparison to normal US NFP day volume, what is important to note is that the data brought more favorable news for gold traders and not so much favorable news for the Fed. The reason I am saying this is because the Fed has been overconfident about their approach in terms of where the labour market is heading, which is contrary to reality. The headline number for Friday was much better than expected, with a reading of 206K against the forecast of 191K when the previous number was at 218K. Gold traders didn't pay much attention to this number because, firstly, they set the bar too low, making a beat on the forecast number not too significant.
More importantly, traders demonstrated a keen attention to detail. The US unemployment rate provided the answer, ticking up to 4.1%, a figure that exceeded both the previous print and the last reading. In addition to this, we had many other components of the US labour market, which also confirmed that things are actually slowing down for the US labour market, so traders need to trade trends carefully, especially if they want to favour riskier assets.
So why has the gold price started to trade lower?
Many traders are wondering today if the US NFP data and the unemployment numbers weren't as impressive, and why the gold price isn't continuing its upward trend. The reason for this is very simple: the dust has settled for the equity players, and they know that the Fed will have to move their monetary policy as the current state of the labour market isn’t great. Remember, the market is addicted to loose monetary policy, and the increased likelihood of the Fed cutting rates in September has led traders to revert to riskier assets. This particular factor has diminished the value of gold.
What Does the US Inflation Data Mean for the Gold Price?
The most important event for this week that gold traders are paying close attention to is, of course, the US inflation number. The data is due on Thursday this week, and the forecast for this number, CPI y/y, is for 3.1%, a lower reading expectation than the previous number of 3.3%.
Now, the only way the hawks can hold on to their corner is if the US CPI number fails to impress the street. Any number higher than the previous number would not be considered bullish for the markets, and it would not be so good news for gold traders either.
Important Price Levels for Gold Prices
Looking at the gold price on the 4-hour time frame, it is very clear that the price is trading in an uptrend, as it is above the 50-day SMA on this time frame. The immediate support level of the price is at 2340, which is where the 50-day SMA is trading on the daily time frame, and it is also the price point where the price can go if bears begin to clean out the obvious stops—currently around the 2351 price mark. However, if the inflation number doesn’t beat expectations, then one should expect the price to experience a serious correction, which means that the price may drop to the next important support zone, which is 2287. In terms of positive price action, if the data, specifically the CPI number, shows a more encouraging sign, we could easily see the price breaking through the resistance at 2388 and reaching a new high at 2,400.
