Gold bugs marched into the trading week with renewed vigour as a weaker dollar elevated the precious metal to its highest level in two months.

After gaining a tepid 1.5% in October, bulls seem to be on a roll in November with gold appreciating over 2.3% month-to-date as of writing. A shaky dollar, subdued Treasury yields, and the Federal Reserve (Fed) signalling it was in no hurry to raise interest rates have boosted buying sentiment towards the precious metal. Given how prices are approaching a major resistance level on the weekly timeframe, could a major breakout be on the horizon for gold?

Outlook to be influenced by US Inflation report 

In our week ahead report, we highlighted how gold could climb higher on inflation fears.

Indeed, the precious metal has often been considered a hedge against inflation – increasing in value as the purchasing power of the dollar declines. Markets are forecasting a 5.9% year-on-year growth for the October US consumer price index, which would be its highest reading since 1990.

But this is where things start to get interesting.

In normal circumstances, a CPI report that meets or exceeds expectations may fuel expectations over the Fed raising interest rates to tame inflation. Higher interest rates tend to dampen demand for gold which is a zero-yielding asset. However, the Fed believes inflation is transitory and as highlighted in the week ahead report – markets also think that raising interest rates in the United States could trigger an economic recession. Meaning that a hot US CPI report could end up stimulating appetite for gold amid concerns over higher US interest rates triggering a recession.

Gold ETF Outflows Continue… 

According to an automated report from Bloomberg, gold ETFs have experienced their six straight days of outflows.

An ETF (Exchange Traded Funds) is an investment instrument that allows retail traders to gain exposure to an existing market or groups of markets. A gold ETF grants investors exposure to gold without having to own it physically. Outflows from ETF’s are generally seen as bearish for the underlying asset. It seems investors may be reducing their exposure to the zero-yielding metal ahead of something that could hurt the metal hard. Although the Fed signalled that it is no hurry to raise interest rates, traders are currently pricing in a 65% chance of at least one rate hike by mid-June 2022.

Breakout could set the tone

Prices are trading above the 50, 100 and 200-day Simple Moving Average while the MACD trades above zero.

After bursting through the $1800 psychological level last Friday, bulls have been on a tear with prices trading around $1823.60 as of writing. Despite the recent rally, the real test will be at the $1834 resistance level which has knocked bulls back on multiple occasions this year. A strong daily and weekly close above this level could open the doors towards $1877.45 and the $1900 regions. Alternatively, should $1834 prove to be a tough resistance level, a decline towards $1813, $1800 and $1777 could be on the cards.

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