Gold's breakout above $4,000 now hinges on Wednesday's US inflation data. A weak jobs report drove last week's surge, but a hot CPI print could reverse the dollar's slide and cap the metal's advance. Traders are watching the $4,365 to $4,425 resistance zone for the next signal.
Gold gained almost 7.5% last week, breaking out of the tight range that had held it near $4,000 for several weeks. The bigger question is whether Wednesday's US inflation report turns that surge into a sustained advance or leaves it as a one-off spike.
Weak payrolls put the dollar under pressure
Friday's US employment report triggered the move, with headline payrolls falling by 20,000. The weakness ran deeper once revisions kicked in: more than 100,000 jobs were wiped from earlier estimates, pulling the three-month average payroll gain down to about 20,000. The unemployment rate fell, but labor-force participation dropped as workers exited the workforce, undercutting that headline improvement.
CPI now takes center stage
The dollar still has four hurdles to clear before the September 16 Federal Reserve meeting: another jobs report, two inflation releases, and the Jackson Hole symposium. If incoming data keep supporting no policy change, markets could pare their bets on a September rate hike, pressuring the dollar further and giving gold another tailwind. A sufficiently strong run of data, however, could quickly reverse that dynamic.
Wednesday's July CPI report is the next major test, coming as Fed Chair Kevin Warsh has stressed keeping inflation under control. Economists expect headline CPI to rise 0.1% on the month, lifting the annual rate to 3.4%. Core CPI is forecast to increase 0.2% on the month, holding annual core inflation at 2.5%.
The risk runs both ways
Oil prices remain elevated, keeping the threat of renewed inflation pressure in view. A hotter-than-expected CPI reading could reverse rate expectations, lifting Treasury yields and the dollar while putting gold's recent gains at risk. Markets are currently pricing only about 11 basis points of a hike for the meeting, leaving considerable room for a hawkish repricing.
Gold tests key resistance after its breakout
Gold now faces resistance around $4,365 to $4,425, an area tested on Friday where a prior swing low from February meets support-turned-resistance. Short-term support sits near the $4,300/5 area, then $4,200, then the base of the breakout around $4,100 to $4,120.
In theory, gold remains one of the clearest beneficiaries of a dovish shift in monetary policy, and last week's rally showed how fast it can move when the dollar and rate expectations turn in its favor. Whether buyers can extend that momentum now rests on Wednesday's CPI report.
Source: Investing.com
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