(Kitco Commentary) - Gold prices finished the week in positive territory last week, as traders paid attention to the weakness in the US job market and also digested comments from various Fed officials. However, smart money believes that the most important economic event for the gold price is going to unfold this week, and it has the potential to bring some massive wild moves for the precious metal.
Background
Last week and the week before, the US labour market pretty much confirmed that the Fed needs to rekindle their thinking process as they are way too comfortable with the state of the US labour market. The release of the US NFP data during the first week of this month caught the Fed off guard, confirming the labor market's collapse and the emergence of weakness. In addition to this, last week we had the US Weekly jobless claims number, which also confirmed that the US labour market doesn’t have the same sort of strength that it had before and the Fed needs to adjust its plans for monetary policy. The weakness in the US job market has provided positive news for gold traders, as they have begun to anticipate a shift in the Fed's narrative. This shift is due to the likelihood of a hard landing for the US economy if interest rates remain unchanged, a topic that many economists have frequently discussed and highlighted for its potential impact on the US economy.
The US Inflation Data
This week is an important one for the Fed, the dollar index, and, of course, gold traders, who have been trying their best to revive the rally in the yellow metal, which is in retracement mode. On Wednesday, we will release the US CPI m/m data, with a forecast of 0.3%, compared to the previous reading of 0.4%. We anticipate the CPI y/y data to register at 3.4%, a marginal decrease from the previous reading of 3.5%.
If the number for the y/y matches the forecast, it would be a good sign for the gold market, as traders are more than likely to take that as a good sign and push the prices higher. If the data comes in lower than expectations, it would be even better news for the gold price, and we could see some serious momentum coming for the price action, which means that the price could actually be beginning its journey towards its all-time high. Conversely, if the reading matches the previous month's level or surpasses it—that is, a significantly higher reading—we might witness a scenario in the gold price where a significant sell-off of the yellow metal could occur.
The Caution About Powell
Whatever the data result is, traders need to be cautious with their approach, and the reason that we are saying this is because Jerome Powell, the Fed Chair, will be speaking one day before the event, and his comments would very much command the narrative. I am not saying that the data will not be important; what we are trying to warn here is that the Fed’s Charman’s comments are going to be equally important. However, as his comments will be before the event and data will come out one day later, traders need to understand that smart money will base its decision very much on the Fed comments. In addition, we will have more FOMC members speak later this week, and their comments will be equally important.
The Gold’s Price Action
The chart below shows important price points (green lines are support zones and red lines are resistance zones) in terms of where the prices can potentially fall and where the major resistance is. Observing the price action below, it's crucial to note that the MACD indicator, a popular tool among technical traders, indicates a potential price retracement before a genuine price improvement. This is because the blue line (also known as the signal line) is about to drop below the red line, and if that happens and the blue line continues to trade below the red line, we are likely to see weakness. This could happen if the Fed or inflation data fails to instill a positive sentiment among traders, which means that the Fed continues its hawkish tone or the inflation data continues its stubborn nature.
Gold MACD Chart by Exness 
Naeem Aslam
I am a former Hedge Fund Trader with over 15 years of experience in investment banking. During my early career, I was awarded a national award (Young Irish Broker) in 2010. Over the years, I have worked with Bank of America in equity trading and with Bank of New York in hedge fund trading.
I specialize in commodities and cover gold prices extensively. I frequently partake across all major tier one media channels such as CNBC and Bloomberg discussing investment strategies around major macroeconomic and political events.
I regularly participate in panel discussions- have spoken at the Headquarters of the European Parliament in Brussels. I held several one-to-one interviews with Governors of various Central Banks, Economic Ministers and C-level Executives. I also MC at Family Office Conferences and I am always eager to help for similar notable conferences.
I am a founder and CIO of Zaye Capital Markets which specializes in providing research on traditional and digital assets. I also Co-founded CompareBroker.io, a leading broker comparison site.
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