gold prices are set to extend their previous recovery, bouncing back from a three-week low of $2,604 early Friday. The metal is supported by a general climate of risk aversion and a slight pullback in the US Dollar ahead of the release of the US Producer Price Index (PPI) data. The market anticipates further movement in gold prices as it seeks to maintain its position above the 21-day Simple Moving Average (SMA) located at $2,627.
Investor concerns regarding the health of the US job market are overshadowing inflation trends, which in turn benefits gold prices. Recent data revealed a significant rise in Initial Jobless Claims, with an increase of 33,000 to a seasonally adjusted figure of 258,000 for the week ending October 5. Despite a drop in annual Consumer Price Index (CPI) inflation from 2.5% in August to 2.4% in September, which was slightly above the anticipated figure, the ongoing market worries about employment support the outlook for a potential interest rate cut by the Federal Reserve in November.
Short-term Treasury yields have significantly declined, leading to a withdrawal of support for the US Dollar. The Greenback’s recovery faltered after attracting downward pressure from the USD/JPY cross-rate, which reacted to hawkish statements from Bank of Japan officials. Remarks from a Federal Reserve president late Thursday did not rejuvenate sentiment surrounding the Dollar, leaving it vulnerable as traders prepared for the upcoming PPI data.
The focus now shifts to the PPI report, with consensus expectations predicting a decrease to 1.6% year-on-year for September, while core PPI inflation is expected to rise to 2.7%. This economic data could have substantial implications for both the US Dollar and gold prices.
On the technical front, gold buyers have re-entered the market, reclaiming the 21-day SMA after previously dipping below it. The Relative Strength Index shows upward momentum, indicating potential for continued gains. Key resistance levels for gold are identified at $2,650 and near $2,670, while support exists at $2,600. A breach below this threshold could expose further downside risks toward the $2,585 level and possibly the $2,550 demand area aligned with the 50-day SMA.
