(Kitco News) – Gold is headed for its third straight week of gains as an improving U.S. inflation picture boosts expectations for a Fed rate cut in September, and the yellow metal could set new record highs before year-end, according to analyst James Hyerczyk at FX Empire.
“Gold prices have retreated from a seven-week high reached on Thursday but remain on track for a third consecutive week of gains,” Hyerczyk noted on Friday. “This upward trend follows weaker-than-expected U.S. inflation data, which has intensified market expectations for interest rate cuts as early as September.”
Hyerczyk said that Thursday’s surprise decline in U.S. CPI has reinforced the view among market participants that the disinflation trend has resumed. “This development has bolstered investor confidence that the Federal Reserve is moving closer to considering rate cuts,” he said. “The Fed’s increasingly dovish stance, acknowledging that consumer prices are trending in the right direction, has further supported this outlook.”
He noted that market sentiment shifted dramatically after the CPI data release. “The CME FedWatch Tool now indicates a 93% probability of a rate cut in September, up from 70% before the data was published. An additional cut is anticipated by December,” he said. “This shift in expectations has provided significant support for gold prices.”
Markets are also taking cues from Federal Reserve officials, whose recent comments have been supportive of the market’s easing expectations. “San Francisco Fed Bank President Mary Daly expressed her anticipation of further easing in both price pressures and the labor market, which could warrant interest rate cuts,” Hyerczyk said. “Similarly, Chicago Fed Bank President Austan Goolsbee suggested that the U.S. economy appears to be on track to achieve 2% inflation.”
Hyerczyk said the short-term outlook for gold remains bullish. “As the market moves closer to a lower interest rate environment, conditions appear favorable for gold to potentially set new record highs before the year’s end,” he said. “The combination of cooling inflation, dovish Fed rhetoric, and increasing rate cut expectations creates a supportive backdrop for the precious metal.”
Turning to the technical picture, Hyerczyk pointed out that spot gold has traded within yesterday’s wide range on Friday. “The chart pattern indicates investor indecision and impending volatility,” he said. “Despite the setback, gold remains in the neighborhood of the all-time high at $2450.13. In addition to the strong upside momentum, XAU/USD is well-supported by the 50-day moving average at $2347.49.”
“Like the Fed, I think gold traders are also data-dependent, which is adding to heightened expectations of volatility,” he concluded.
Spot gold has set fresh session highs on Friday afternoon, last trading at $2,416.92 for a marginal gain of 0.06% on the day.
