(Kitco News) – While the Federal Reserve is widely expected to cut its key interest rate following Wednesday’s meeting, the language and tone of the statement and comments from Fed chair Powell’s post-meeting presser could hold the key to the next move higher for gold prices, according to the latest weekly market update from the World Gold Council (WGC).
The WGC analysts noted that last week’s price action was driven by a mix of inflation data and political turmoil. “In the US, mixed inflation data, cooling labor markets, and weakening consumer sentiment kept expectations of a Fed rate cut in place,” they said. “In Europe, political instability in France added to economic pressure, while the ECB held rates steady. China grappled with deflationary pressures, and Japan prepared for snap elections.”
After posting gains last Monday, spot gold hovered around the $3,640 per ounce level for the rest of the week on its way to a 1.6% gain.
“It was likely held back from further gains as Oracle’s big AI bet fueled risk sentiment and inflation data wasn’t hot enough to sour rate cut expectations,” the analysts wrote. “Gold ETF investors have done much of the heavy lifting over the past few months. Can COMEX investors, seemingly with capacity in hand (COTW), trigger further moves higher in the price? A Fed shifting focus to growth from inflation might just be the spark.”
The focus this week is squarely on the Federal Reserve, with the central bank expected to resume the cutting cycle with a 25bps cut. “Yet Trump’s note on Sunday that he expects a ‘big cut’ means that the possibility of a bigger rate reduction remains,” they warned.
“The past three cutting cycles starting in January 2000 all saw a robust gold performance – all three cutting cycles were to support growth,” the analysts said. “It is therefore key to watch any clues from the press conference: if the Fed confirms that the labour market takes precedence over inflation, this cutting cycle may accelerate and gold’s bullish bets may rise.”
Turning to the technical picture, the World Gold Council noted that prices posted another strong week since gold completed its long-awaited triangle continuation pattern. “[N]ext flagged Fibonacci projection resistance at US$3,664oz - $3,676/oz,” they noted.
“Whilst a further pause may be seen beneath here the uptrend is seen strong and with RSI momentum not yet signalling exhaustion and with the USD expected to stay weak, a break higher in due course should see resistance next at US$3,700/oz ahead of potential trend channel resistance at US$3,822 and then the technical ‘triangle’ resistance at US$3,840/oz,” the analysts said. “The ‘typical’ historical overbought extreme – 25% above the 40-week average – is seen higher at US$3,915/oz.”
They added that while net long positioning is still rising, it is not yet at extreme levels, “suggesting this is not (as yet) a potential barrier to the uptrend extending.”
The analysts see initial support between $3,580 and $3,560 per ounce, followed by key support at $3,512 per ounce, “which we look to ideally hold.”
Spot gold shot up to $3,703.24 per ounce shortly after 10 am EDT, but prices have since pulled back to the middle of the daily range.
Spot gold last traded at $3,686.28 for a gain of 0.20% on the session.
