Gold Price Outlook: Modest Gains with Limited Upside Potential Ahead of US Retail Sales
The gold price has shown modest gains in early Friday’s Asian trading session, but the broader outlook remains cautious. Despite a mild recovery from its two-month low, gold’s upside potential seems constrained by several key factors, including the strength of the US Dollar (USD) and growing expectations of a slower pace of interest rate cuts by the Federal Reserve. As the market awaits the release of key economic data later on Friday, including the US Retail Sales report for October, the future direction of gold remains uncertain.
Gold Price Rebounds After Reaching Two-Month Low
Gold (XAU/USD) has experienced a slight recovery, trading around $2,570 after hitting a two-month low earlier in the week. The precious metal’s performance has been weighed down by a stronger USD, as well as speculation about the Federal Reserve’s rate-cutting trajectory. A key development contributing to this pressure is the expectation that the Fed will slow its pace of interest rate cuts, which typically diminishes gold’s appeal as an investment.
Despite these headwinds, there are factors that could support gold prices, particularly geopolitical risks and inflationary concerns. However, these elements may not be enough to counterbalance the USD strength and the Fed’s cautious stance on rate cuts.
XAU/USD Daily Price Chart
Source: TradingView, prepared by Richard Miles
Factors Impacting Gold Price Performance
Several factors are influencing gold’s recent price movements, and a combination of these may determine the precious metal’s trajectory in the near future.
1. Strength of the US Dollar
The US Dollar has been showing strength recently, exerting downward pressure on gold prices. A firmer USD makes gold more expensive for holders of other currencies, reducing demand. As a non-yielding asset, gold is particularly sensitive to shifts in the value of the dollar, with a stronger USD typically leading to lower gold prices.
2. Federal Reserve’s Rate Cut Expectations
The Federal Reserve’s stance on interest rates plays a significant role in gold’s price dynamics. While the central bank’s actions to curb inflation with aggressive rate hikes earlier this year have subdued demand for gold, markets are now factoring in a more gradual approach to future rate cuts. The expectation of slower rate reductions has been a key factor behind the recent downward pressure on gold, as higher interest rates reduce the appeal of gold, which yields no interest or dividends.
3. Inflation Concerns and Political Uncertainty
There are concerns about higher inflation in the coming year, particularly in light of economic policies proposed by former President Donald Trump. If inflation expectations rise, there could be upward pressure on gold prices, as investors traditionally flock to the yellow metal as a hedge against inflation. Additionally, geopolitical risks—particularly tensions in the Middle East and the ongoing conflict between Ukraine and Russia—could drive demand for gold as a safe-haven asset, potentially supporting prices in times of uncertainty.
4. Geopolitical Tensions and Safe-Haven Demand
Ongoing geopolitical developments, particularly in the Middle East and Eastern Europe, could bolster demand for gold. Gold has historically been viewed as a safe-haven asset during times of geopolitical instability. Any escalation in global tensions, whether related to the Israel-Hamas conflict or the war in Ukraine, could drive investors to seek refuge in gold, pushing prices higher.
Upcoming US Economic Data and Market Sentiment
The market is closely watching the release of key US economic data, which could provide further clarity on the trajectory of the US economy and the Federal Reserve’s next steps.
1. US Retail Sales Report for October
The US Retail Sales report for October, due later on Friday, is a crucial data point that investors will closely monitor. A strong retail sales figure could signal a resilient consumer sector, which may influence the Fed’s decision-making in the upcoming meetings. Conversely, weaker-than-expected data could raise concerns about the health of the economy, potentially leading to a shift in expectations for future rate cuts.
2. NY Empire State Manufacturing Index & Industrial Production
In addition to retail sales, the NY Empire State Manufacturing Index and Industrial Production data will be released later on Friday. These reports will provide further insight into the state of the manufacturing and industrial sectors, which are key drivers of economic growth. Any signs of weakness in these areas could influence market sentiment, potentially supporting gold prices as a safe-haven asset.
3. Speeches by Fed Officials
Fed officials are scheduled to speak later on Friday, including Susan Collins and John Williams. Their comments could provide additional insight into the central bank’s thinking regarding future interest rate moves. If they indicate a more dovish outlook, it could provide some support for gold prices. However, if they reaffirm the Fed’s commitment to a cautious approach in lowering rates, gold could face further headwinds.
Technical Outlook: Gold Price’s Vulnerable Bullish Bias
From a technical perspective, gold’s price action remains vulnerable, despite the recent uptick. The price is currently hovering around the key 100-day Exponential Moving Average (EMA), a level that has historically acted as both support and resistance.
1. Break Below 100-Day EMA Could Signal Further Downside
Gold’s recent price action suggests that a break below the 100-day EMA could signal the resumption of the bearish trend. The 14-day Relative Strength Index (RSI) is currently below the 50-midline at around 33.60, indicating that momentum remains to the downside. If the price falls below the 100-day EMA, it could pave the way for further declines.
2. Support Levels to Watch
If the gold price breaks below the 100-day EMA, the next key support level to watch is $2,485, the low from September 8. Further declines could push the price down to $2,353, the low of July 25, with a more significant drop potentially targeting the $2,300 psychological level.
3. Resistance Levels and Potential Upside
On the upside, immediate resistance for gold is seen near $2,665, a level that has acted as both support and resistance in recent trading. A decisive break above this level could trigger a rally toward $2,750, which marked a high on November 6. A sustained move above this resistance level could signal a shift in sentiment, potentially setting the stage for a more significant bullish move.
Gold’s Outlook Remains Cautious
The outlook for gold remains cautious, with several key factors limiting its upside potential. The strength of the US Dollar, expectations for a slower pace of Federal Reserve rate cuts, and geopolitical risks all contribute to the current market environment. While there are some factors that could support gold, such as inflation concerns and safe-haven demand, the broader market sentiment remains influenced by the Fed’s cautious approach to interest rates and the strength of the USD.
As the market awaits key economic data, including the US Retail Sales report and speeches from Fed officials, gold’s direction remains uncertain. Investors should be prepared for potential volatility, with technical support and resistance levels providing important guidance for future price movements.
