Gold prices remain strong following a US CPI report aligning with expectations and weaker-than-anticipated initial jobless claims. The jobless claims rose to the highest level since 2021, mainly due to an unusual increase in Texas, suggesting the labour market could be weakening and influencing the Federal Reserve’s stance.
Gold’s broader trend suggests an upward movement as real yields are expected to fall, influenced by potential dovish actions from the Fed. However, short-term interest rate expectations that lean hawkish might cause temporary corrections in gold prices.
Technical Analysis Overview
Technical analysis on the daily chart indicates buyers may find favourable opportunities around the 3,400 level. Conversely, sellers may aim for a drop toward the 3,120 level. On the 4-hour chart, a minor upward trendline supports bullish momentum, while sellers might target a break below it aiming for the 3,400 level.
The 1-hour chart shows rejection at the 3,657 level, with a minor trendline guiding momentum. Buyers might aim for a breakout above this level, whereas sellers could seek a pullback towards the 3,590 level. The University of Michigan Consumer Sentiment report is set to conclude the week.
We’re seeing gold prices hold steady as we approach the next Federal Reserve policy decision. The recent surprise jump in initial jobless claims to 275,000, largely influenced by a spike in Texas, is fueling the narrative of a weakening labor market. This perception increases the odds of a more dovish Fed, which is historically supportive for gold prices.
In this environment, the bigger picture for gold appears to be an uptrend, as a dovish Fed would likely push real yields lower. We saw a similar dynamic begin to play out in late 2023 when markets first started pricing in rate cuts for the following year. However, any unexpected hawkish signals from officials could easily trigger short-term corrections, so we must be prepared for volatility.
Gold Trading Strategies
For those with a bullish outlook, we see the major trendline around the $3,400 level as a key area of support. Buying call options or establishing bull call spreads on any pullbacks towards this price point could offer a favorable risk-to-reward setup. This strategy would target a move back toward the recent highs near $3,657 while keeping potential losses defined.
Conversely, a more aggressive or hawkish stance from the Fed could easily break the current market sentiment. A clean break below the $3,400 support line would be our signal to consider bearish strategies, such as buying put options. The next significant downside target in that scenario would be the support level down at $3,120.
We must also be aware that implied volatility for gold options is climbing ahead of the FOMC meeting, making new positions more expensive. This is a pattern we consistently observed during the volatile rate-hiking cycle of 2022-2023. Traders with existing long gold positions might consider buying protective puts to hedge against a sharp, unfavorable move.
While today’s University of Michigan Consumer Sentiment report will be watched, the Federal Reserve’s decision is the dominant catalyst. Short-term traders can use minor trendlines, like the one near $3,590, for tactical entries and exits. However, we believe significant capital should be deployed based on the reaction to the more established, longer-term technical levels.
