Gold lost its bullish momentum after hitting a historical high last week.
The technical outlook suggests that sellers are still on the sidelines.
Investors will closely monitor geopolitical developments and US inflation data next week.
Gold (XAU/USD) struggled to make a decisive move in either direction this week, as broad US dollar (USD) strength offset the growing safe-haven demand for the precious metal. Developments surrounding Middle East conflicts and US inflation data could drive XAU/USD action next week.
Gold Ignores Dollar's Resurgence
Gold started the new week under bearish pressure, falling nearly 1% on Monday. Federal Reserve (Fed) Chairman Jerome Powell did not provide any new hints about the next policy steps in his speech at the National Association for Business Economics annual conference. Powell reiterated that risks are two-sided, and they will make policy decisions on a meeting-by-meeting basis. "The Fed is not in a hurry to cut rates quickly and will be data-dependent," he added. These comments steadied the dollar and forced XAU/USD to remain in a disadvantageous position.
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Despite the dollar's strength on Tuesday after the US Bureau of Labor Statistics (BLS) reported that JOLTS job openings increased from 7.71 million in July to 8.04 million in August, gold benefited from escalating geopolitical tensions, rising more than 1% to erase all of Monday's losses. Reports of the Israeli military launching a ground invasion of Lebanon reignited concerns about deepening and expanding conflicts in the Middle East.
On Wednesday morning, news that Iran had fired approximately 200 ballistic missiles at Israel, with Israel vowing to retaliate for the attack, helped gold find demand. Israeli Prime Minister Benjamin Netanyahu stated that Iran had made a "big mistake" and would "pay the price," further escalating tensions. However, as the dollar accelerated its recovery in the latter half of the day, gold/dollar struggled to gather bullish momentum and closed the day with little change. The Automatic Data Processing (ADP) report, which stated that private sector employment increased by 143,000 people in September, exceeding market expectations of 120,000, supported the dollar.
Data released by the Institute for Supply Management (ISM) on Thursday showed that service sector business activity continued to accelerate expansion in September, with the ISM Services Purchasing Managers' Index (PMI) rising from 51.5 in August to 54.9. The dollar capitalized on this report, making it difficult for gold to rebound.
On Friday, the US Bureau of Labor Statistics announced that non-farm payrolls (NFP) increased by 254,000 people in September, significantly surpassing market expectations of 140,000. Additionally, the August NFP growth was revised up from 142,000 to 159,000. Other details of the employment report showed that the unemployment rate slightly decreased to 4.1%, while annual wage inflation, measured by average hourly earnings changes, rose from 3.9% in August to 4%. Gold failed to rebound after the optimistic US labor market data.Gold investors continue to monitor geopolitical events and await U.S. inflation data. The U.S. economic calendar will not release any high-level macroeconomic data in the first half of next week. On Wednesday, the Federal Reserve will publish the minutes from the September policy meeting.
Investors will scrutinize the discussions surrounding the decision to lower the policy interest rate by 50 basis points (bps). If the publication shows policymakers are more inclined to take a significant rate cut as the first step, rather than gradually easing policy, instead of responding to increasing signs of a cooling labor market, the immediate reaction could boost the U.S. dollar. The CME Group's FedWatch tool indicates that the market is still pricing in a higher than 30% chance of the Federal Reserve choosing to cut rates by another 50 basis points at its next policy meeting in November, suggesting that the U.S. dollar would have greater upside potential if investors lean towards a 25 basis point rate cut.
On the other hand, if the minutes reflect that policymakers are open to further significant rate cuts should data indicate an economic downturn or a deteriorating labor market outlook, the U.S. dollar could come under pressure and allow gold to turn higher.
On Thursday, the Bureau of Labor Statistics (BLS) will release the Consumer Price Index (CPI) data for September. The monthly core CPI reading (excluding the prices of volatile goods and not distorted by base effects) may trigger a reaction in gold. The market expects the core CPI for September to rise by 0.2%, following a 0.3% increase in the same period last year. A reading of 0.2% or less could weigh on the U.S. dollar. A rise of 0.5% or more could lead investors to doubt the deflationary process and boost the U.S. dollar, resulting in a downturn for XAU/USD.