XAU/USD targets $1,710 as the next recovery target in the gold weekly forecast
On Monday, gold started the week under selling pressure and declined toward $1,620 before staging a rebound and closing four days in a row in positive territory after starting the week under selling pressure.
XAU/USD Gold could gather bullish momentum if it manages to clear $1,676.
XAU/USD ended up snapping a two-week losing streak ahead of the September jobs report and next week’s ISM PMI surveys scheduled for release next week.
Due to the turmoil in global bond markets caused by the UK gilt sell-off at the beginning of the week, low-yielding gold was negatively affected by the sell-off in global bonds.
As the benchmark 10-year US Treasury bond yield rose towards 4% on Monday, the XAU/USD index turned south and recorded its lowest daily close since March 2020 at $1,622 as a result.
Tuesday, the yellow metal managed to shake off the bearish pressure and ended the day modestly higher despite the bearish pressure.
During the month of September, the Consumer Confidence Index in the US improved to 108.00 from 103.6 in August, according to data published by the Conference Board.
While the dollar gained some strength with the initial reaction to the publication, the underlying details showed that the Consumer Inflation Rate Expectations for the next year declined from 7% to 6.8%, which limited the upside potential for the USD.
A sharp decline in global bond yields was triggered by the intervention of the Bank of England (BoE) in the gilt market on Wednesday.
It has been announced that the UK central bank is going to carry out temporary purchases of long-dated government bonds in order to restore the functioning of the market.
It was led by a 10% decline in the 10-year UK gilt yield that caused the 10-year US T-bond yield to lose more than 5% and allow an inversely-correlated commodity like gold to gather bullish momentum as a result.
It was the biggest one-day gain for XAU/USD since late March, up nearly 2% on the day.
As a result of the BoE’s action, markets turned away from the greenback and paved the way for an overdue correction in the US Dollar Index (DXY) to occur.
As the dollar was facing strong bearish pressure in the second half of the week, the DXY fell more than 2% as a result.
On Friday, during the Asian trading hours, the NBS Manufacturing PMI for September rose above 50 to its highest level in a week above $1,670 Friday after it had declined to 49.4 in August.
The data from China helped gold to rise to its highest level in a week above $1,670 during the Asian trading hours.
On the other hand, the US Bureau of Economic Analysis (BEA) reported on Thursday that the real Gross Domestic Product (GDP) for the second quarter contracted at an annualized rate of 0.6% compared to the first quarter.
As expected, the reading was in line with the previous estimate and the market expectation, so there was no noticeable reaction in the market.
It has been announced by the Bureau of Economic Analysis on Friday that the Personal Consumption Expenditures Price Index declined from 6.4% on a yearly basis in July to 6.2% in August.
The core PCE inflation rate, however, rose from 3.8% to 4.9% in the same period, which made it difficult for gold to maintain its bullish momentum during this time period.
This week, the People’s Bank of China (PBoC) introduced measures to limit the depreciation of the CNY, which is also important to note.
The PBoC has reinstated its reserve requirement rule for banks’ forward sales of CNY by increasing the required reserve ratio from 0% to 20% for banks’ forward sales of CNY.
As a result of this action, the Chinese demand for gold could improve and the price of gold could rise if it has the intended impact on the CNY’s exchange rate.
The week after next
There will be a lot of attention being paid to global bond markets next week by market participants.
The UK gilt market appears to have stabilized following the BoE’s intervention, but investors may lose confidence quickly if the UK government fails to address concerns over the economy being pushed into an unsustainable debt path in the near future.
There is a possibility that gold could be hit by another bout of the global bond sell-off.
In contrast, if the UK re-adjusts the fiscal policy in order to provide further relief to gilt markets, another leg down in bond yields should help gold to stretch higher as it climbs further.
On Monday, the US economic calendar will feature the ISM Manufacturing PMI data, which is expected to remain at 52.8 in September, as part of the US economic docket.
It is noted that the inflation component of the survey, the Price Paid Index, fell to 52.5 in August and a reading below 50 in September would indicate falling input costs for the manufacturing sector and a lift in XAU/USD.
A report on the Services PMI will be released by the ISM on Wednesday.
With the Prices Paid Index reaching 71.5 in August, it can be said that the service sector price pressures were relatively strong.
If there is a significant slowdown in inflation in the service sector, the dollar will be hurt and vice versa.
There will be an official release of the September jobs report by the US Bureau of Economic Analysis on Friday.
Despite August’s 315,000 increase in nonfarm payrolls, it is expected that nonfarm payrolls will rise by 250,000 in September.
Initial Jobless Claims have steadily declined since mid-Summer, but employment components of the August PMI surveys show a significant slowdown in the rate of employment growth in the private sector as well.
By the end of 2023, Fed officials are forecasting that the Unemployment Rate will be 3.8% by year-end and 4.4% by the end of 2024, based on the latest Summary of Projections (SEP).
During the meeting, policymakers made it clear that they will prioritize battling inflation over raising rates until they see signs that the unemployment rate will rise steadily in the future.
Due to this, it is unlikely that the labor market statistics for September will have a significant impact on the Fed’s policy outlook in the near future.
However, it is possible that investors will see a weaker-than-forecasted NFP growth report as an excuse to sell the dollar and may open the door for bullish movement in XAU/USD ahead of the weekend as a result.
As an alternative, market participants might look to add to their dollar-long positions if the NFP increases at a faster pace than expected in the weeks ahead.