Gold watch: What will drive gold prices from here?

Gold and silver both enjoyed a surge higher on the weak US CPI print from last Wednesday on July 12th as could be anticipated. The headline came in below expectations at 3%, but the core came in below the market’s minimum expectations at 4.8%. So, falling inflation data was the reason for gold’s recent bounce. Why? That’s because if inflation is falling the Federal Reserve will not need to be so aggressive in hiking rates. This is why the USD fell and US yields fell on the weak inflation print. When yields are falling and the USD too then gold will typically gain. See here for an explanation.

The way in, is the way on for gold

In other words, the likely driver of gold moving forward is going to be the rate expectations for the Fed. The Fed have been very clear that they will be looking at incoming inflation data (particularly Core PCE) and labour data on deciding their policy pace. So, this is helpful. If either/both upcoming inflation data and labour prints come in lower then the market is expecting that should also lift gold. Why? Because if inflation is falling and the labour market is weakening then the Fed should need to be les aggressive on rates. This, in turn should weaken the USD and send yields lower which typically lifts both gold and silver prices. Also, note the very strong seasonal bias for gold upside in August on physical purchases which can also help gold prices higher.

Key dates ahead for gold to mark on your calendar

These dates are key ones not to miss as there will likely be significant volatility around them for both gold and silver prices:

Wednesday, 19:00 UK time, July 26: Fed’s decision

Thursday, 13:30 UK time, July 27: US PCE inflation data

Friday, 13:30 UK time, August 04: US NFP labour data

Investors are carefully eyeing up the triple top for gold on the daily chart. Buyers will need to see a clean break of this level and watch for stops being tripped into $2100.