Gold Weekly Forecast: Concerns Over Recession in US Leave Room for Additional Gains
Key Takeaways:
- Gold reclaimed $2,900 after suffering large losses at the end of February.
- US inflation data and political headlines may continue to drive gold's pricing.
- Bullish bias remains intact, but the uptrend needs more momentum.
After a sharp decline in the last week of February, Gold (XAU/USD) began March with a bullish trend, reclaiming the $2,900 level. The metal's performance may be influenced by the February inflation data from the US and political headlines.
Gold's Rebound Above $2,900
Gold started the week strongly, rising more than 1% on Monday due to escalating geopolitical tensions after President Trump's cancellation of a minerals deal with Ukraine. Fears over a US economic downturn also weighed on the USD, helping XAU/USD to rise.
Economic Data Impact:
- The US ISM Manufacturing PMI declined to 50.3 in February.
- The Employment Index slumped to 47.6.
- Construction Spending declined by 0.2% in January.
- The Federal Reserve Bank of Atlanta revised its GDP projection to -2.8% for the first quarter.
Trump administration's tariffs on Canadian, Mexican, and Chinese imports further fueled the USD selloff, allowing XAU/USD to close comfortably above $2,900 on Tuesday.
Challenges to Bullish Momentum:
XAU/USD struggled to maintain its bullish momentum despite the persistent USD selling pressure. The Euro's impressive performance after Germany agreed to seek a loosening of its debt brake led to a decline in the XAU/EUR pair. The decision to exempt autos from Canada and Mexico tariffs improved market sentiment, limiting gold’s upside.
Friday's Nonfarm Payrolls report showed an increase of 151,000 in February, missing market expectations. The Unemployment Rate edged higher to 4.1%. The USD's failure to rebound allowed gold to remain in the upper half of its weekly trading range.
US Inflation Data Awaited
The US economic calendar includes the Consumer Price Index (CPI) data for February on Wednesday. As the Federal Reserve (Fed) enters a blackout period before its March policy meeting, this inflation report could significantly influence market pricing and gold's performance.
The probability of the Fed holding rates unchanged in May has decreased, increasing the importance of the upcoming CPI data. A core CPI print of 0.2% or lower could strengthen expectations for a rate cut, supporting gold. Conversely, a print of at least 0.5% could boost the USD and hinder gold's bullish momentum.
Gold Technical Analysis
Gold has returned to the ascending regression channel, and the Relative Strength Index (RSI) has risen towards 60, indicating that the bullish bias remains intact after a technical correction. The metal's recent daily candles have closed above the 20-day Simple Moving Average (SMA).
Key Technical Levels:
- Upside Resistance: $2,955 (record-high), $2,975 (mid-point of channel), $3,000 (psychological level).
- Downside Support: $2,910-$2,900 (20-day SMA, channel lower limit), $2,870 (Fibonacci 23.6% retracement), $2,815 (Fibonacci 38.2% retracement).
Gold FAQs
Gold FAQs
Gold has played a key role in human’s history as it has been widely used as a store of value and medium of exchange. Currently, apart from its shine and usage for jewelry, the precious metal is widely seen as a safe-haven asset, meaning that it is considered a good investment during turbulent times. Gold is also widely seen as a hedge against inflation and against depreciating currencies as it doesn’t rely on any specific issuer or government.
Central banks are the biggest Gold holders. In their aim to support their currencies in turbulent times, central banks tend to diversify their reserves and buy Gold to improve the perceived strength of the economy and the currency. High Gold reserves can be a source of trust for a country’s solvency. Central banks added 1,136 tonnes of Gold worth around $70 billion to their reserves in 2022, according to data from the World Gold Council. This is the highest yearly purchase since records began. Central banks from emerging economies such as China, India and Turkey are quickly increasing their Gold reserves.
Gold has an inverse correlation with the US Dollar and US Treasuries, which are both major reserve and safe-haven assets. When the Dollar depreciates, Gold tends to rise, enabling investors and central banks to diversify their assets in turbulent times. Gold is also inversely correlated with risk assets. A rally in the stock market tends to weaken Gold price, while sell-offs in riskier markets tend to favor the precious metal.
The price can move due to a wide range of factors. Geopolitical instability or fears of a deep recession can quickly make Gold price escalate due to its safe-haven status. As a yield-less asset, Gold tends to rise with lower interest rates, while higher cost of money usually weighs down on the yellow metal. Still, most moves depend on how the US Dollar (USD) behaves as the asset is priced in dollars (XAU/USD). A strong Dollar tends to keep the price of Gold controlled, whereas a weaker Dollar is likely to push Gold prices up.