Gold (XAU/USD) FUNDAMENTAL BACKDROP
The Gold price has rallied higher in Asian trade with a session high of $2020.87 before surrendering some of those gains following the European open (trading at $2011.00 at the time of writing). The question of the sustainability of such a move however remains on the mind of market participants in what could prove to be a pivotal day for the precious metal.
Gold found support at the pennant breakout on Monday before bouncing yesterday on the back of a weaker US dollar which snapped a four-day winning streak. Market sentiment overall has been relatively muted following the weekend as key US data events lie ahead.
Comments from Federal Reserve policymakers failed to provide any clarity with rather mixed and vague commentary. Minneapolis Fed President Kashkari said he sees inflation down to around 3% in 2023 while John Williams of New York said he feels the Fed need to do more to combat inflation. Interesting comments given the expected forecast for Core CPI which is expected to indicate a slight uptick in March.
An interesting day and week ahead for the precious metal as price approaches a key inflection point around the $2033.00 level (most recent swing high). The US inflation print due out later comes hot on the heels of labor market data which remained robust. A rise in inflation today or a significant miss of the forecast print of 5.2% could result in a fresh push to the downside for the precious metal while a sign that inflation continues to soften may serve as a catalyst for a retest of the 2022 high around the $2070.00 handle. In a manner of speaking, it is clearly make or break time for the precious metal.
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TECHNICAL OUTLOOK AND FINAL THOUGHTS
Form a technical perspective, Gold has seen a lovely break, retest and continuation of the pennant pattern as we approach the recent swing highs around the $2033.00 level. The vertical distance between the upper and lower trendline is around $80 which puts potential upside targets around the 2022 high of $2070.00 which has yet to be reached. (Read: How to Trade Triangle and Pennant Formations).
The technicals appear to be in favor of further upside and a potential test of that 2022 high but faces a host of challenges. Some key resistance levels and of course the US inflation data release which could have a material impact on the USD index and thus gold prices moving forward.
Gold (XAU/USD) Daily Chart – April 12, 2023