Gold outlook still positive after recent slip

Gold was trading higher, holding above the $2400 level in the first half of Thursday’s session. We have seen the US dollar weaken somewhat of late after losing a chunk of its yield appeal due to weak economic indicators pointing to a slowdown in the US and raising the prospect of multiple rate cuts starting in September. Until a couple of days ago, it was currencies with lower interest rates like the yen, franc, and yuan which had benefited the most from the weakening dollar. But this trend could soon shift towards a broader dollar weakness, potentially keeping buck-denominated gold supported on the dips. The events of the past week or so had so far failed to bolster gold prices. Gold’s slight weakness in recent days was probably due to the sharp sell-off in stocks, which forced the liquidation of leveraged long trades, including gold. However, as I have mentioned before, the downside should be limited for gold. The fundamental gold outlook remains positive, and new all-time highs are still within reach.

Gold outlook: Stabilising stock markets also helping yellow metal

In recent years, gold has been correlating positively with the S&P 500. So, the fact that we have seen some stabilisation in equities space, this has also helped to support the precious metal today.

In the first half of today’s session, European indices and US index futures saw a slight increase after erasing their substantial gains towards the end of trading on Wednesday. Overnight, the Japanese Nikkei retained its gains. Overall, though, market sentiment remains cautious following recent disruptions, and it is uncertain if a more sustainable recovery will occur, given the lack of significant economic news.

Looking Ahead: Jobless claims, PPI and US CPI

Given the Federal Reserve's increasing focus on employment, attention will be on the latest jobless claims data scheduled for release later, before the focus shifts back to inflation data in the week ahead.

Jobless claims have been steadily rising and last week they came in at 249K, up from 235k the previous week and above expectations. Continuing claims also rose more than expected last week to 1877K from 1844K. Today, initial claims are expected to come in slightly weaker compared to last week’s print at 241K. Let’s see if we will once again see disappointment in the latest data.

In the week ahead, the economic calendar is busier. After the latest jobs report and ISM manufacturing PMI disappointment are out of the way, the attention will be PPI and CPI figures scheduled for Tuesday and Wednesday, respectively.

A surprising weak inflation report could deliver a big blow for the US dollar, which has lost some of its yield advantage lately. A 0.2% month-on-month for both headline and core readings are expected. If CPI turns out to be hotter, this would argue against accelerated rate cuts that the markets have priced in. Else, markets could grow in confidence with its roughly 100bp of expected cuts in 2024, keeping the gold outlook positive.

Gold outlook: Technical Analysis

Source: TradingView.com

The metal is still riding a bullish wave as it has been all year as you can see on the daily gold chart. As long as we keep seeing higher highs and higher lows, the trend remains firmly in favour of the bulls, so we're sticking with our optimistic gold outlook and reckon a new all-time high could be seen soon.

The key short-term support levels to watch include the bullish trend line around $2400, followed by $2380, and $2365. In the event these levels break, then there is not much further support seen until $2300.

On the flip side, resistance levels are pegged at $2430/1, $2450 and, of course, that all-time high of $2483 from July.

As long as gold stays on this upward trajectory, the bulls are in the driver's seat.

-- Written by Fawad Razaqzada, Market Analyst

Follow Fawad on Twitter @Trader_F_R