Gold prices have risen above $4,050 due to concerns over global growth and uncertainties regarding the US economic outlook, spurred by weak US private jobs data and a downbeat University of Michigan Consumer Sentiment Index. Lower interest rates could support gold, as they reduce the opportunity cost of holding the non-yielding metal.
Conversely, potential resolution of the US government shutdown may weaken safe-haven demand for gold. US senators are deliberating a deal that may conclude the longest government shutdown on record, while eased US-China trade tensions might also impact gold’s price in the near term.
Investors Review Economic Indicators
Investors are examining US Consumer Price Index inflation data, expected to show a 0.2% monthly rise in October. The core CPI is projected to increase by 0.3% in the same period, and attention will turn to US Retail Sales later this week.
Gold trades positively, maintaining bullish momentum above the 100-day Exponential Moving Average with a 14-day Relative Strength Index above 55. Sustained trading above $4,161 could push prices toward the $4,200 level, while persistent trading below $4,000 might signal a bearish shift towards $3,835 or even $3,705.
Gold is trading above $4,050 as we start the week, pushed higher by worries about the US economy. The recent October jobs report, which showed non-farm payrolls at a weaker-than-expected 150,000, has fueled these concerns. This weak data, combined with consumer sentiment dropping to its lowest level since mid-2022, is making traders bet on a Fed rate cut next month.
However, we see two major risks that could pull the price back down. A potential deal to end the longest government shutdown since the 35-day stoppage back in 2018-2019 could reduce the need for safe-haven assets. Additionally, signs of improving US-China relations might also weigh on gold’s appeal.
Potential Impacts of CPI Data
This week, we are watching the October CPI data on Thursday and Retail Sales on Friday. If inflation comes in hotter than the expected 0.2% monthly increase, it could challenge the idea of a December rate cut, similar to how high inflation in 2022 forced aggressive Fed action. This would likely strengthen the dollar and create immediate headwinds for gold.
For those of us trading derivatives, this sets up a classic volatility play. Buying call options with strike prices targeting the $4,200 level could be a way to profit if the economic data remains weak. This strategy aligns with the current technical momentum, which shows the price holding firmly above its 100-day moving average.
On the other hand, if a shutdown deal is confirmed or inflation data surprises to the upside, the sentiment could shift rapidly. We would then consider put options to guard against a drop below the key $4,000 mark. A decisive break of this level could see gold quickly test its lower support near $3,835.
