Gold Prices Forecast: Will Upcoming CPI Data Trigger Market Volatility?

James Hyerczyk
Published: May 12, 2024, 01:44 GMT+00:00

Key Points:

  • Unexpected job claims drive gold prices amid rate cut talks.
  • Upcoming CPI report critical for future rate adjustments.
  • Rising shelter costs could slow progress on inflation goals.
Gold Prices Forecast

Gold Prices Rebound Amid Economic Uncertainty

Last week, gold prices surged, marking their strongest performance since early April. This increase is attributed to evolving economic indicators and speculation around changes in U.S. monetary policy, especially regarding potential Federal Reserve interest rate adjustments.

XAU/USD finished the week at $2360.515, up $58.705 or +2.55%.

Weekly Gold (XAU/USD)

Economic Indicators Fueling Gold’s Rise

The catalyst for the sharp increase in gold prices was the unexpected rise in U.S. unemployment claims, combined with disappointing nonfarm payroll data. This weaker-than-expected jobs data has heightened speculation that the Federal Reserve might lower interest rates as early as September to stimulate the economy. Typically, lower interest rates decrease the opportunity cost of holding non-yielding assets like gold, enhancing its appeal.

Impact of Treasury Yields and Dollar Strength

Despite a rise in U.S. Treasury yields, with the 10-year note climbing over five basis points to 4.5%, gold prices have continued to climb. This suggests that expectations of a looser monetary policy are overshadowing the typical negative impact of higher yields on gold. Meanwhile, the dollar showed modest gains following mixed economic signals but failed to dampen the upward trajectory of gold prices.

Upcoming CPI and Employment Data Influence

Significant attention is now on the upcoming Consumer Price Index (CPI) release scheduled for May 15, which is expected to show continued high inflation. April’s CPI is anticipated to increase by about 0.3% month-over-month, with core inflation at 0.3%. These figures are closely watched as indicators of whether the Federal Reserve will adjust interest rates. Additionally, the Fed is shifting its focus toward employment data, suggesting that future policy decisions might also hinge on job market health.

Shelter Costs and Inflation Expectations

Shelter costs, a major component of the CPI, continue to rise faster than other categories, which might delay any significant drop in overall inflation. The Federal Reserve is closely monitoring this trend, as a reduction in shelter costs could be critical for achieving its 2% inflation target.

Short-Term Forecast

The gold market is poised for further volatility this week as traders and investors await the April CPI data release. If the CPI shows inflation cooling more than expected, or if employment figures reveal further softening in the job market, gold could see an uptick as the prospects for an interest rate cut become more likely.

However, if the inflation data remains elevated or exceeds expectations, the Federal Reserve may opt to delay any rate cuts, potentially restraining gold’s upward momentum. Traders should stay alert to these key economic indicators, as they will significantly influence gold’s price movements in the short term.

About the Author

James is a Florida-based technical analyst, market researcher, educator and trader with 35+ years of experience. He is an expert in the area of patterns, price and time analysis as it applies to futures, Forex, and stocks.

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