– Gold kicked off the week on a steady note despite last Friday’s blowout jobs report cooling recession fears and reinforcing expectations for more aggressive Federal Reserve interest rate hikes.

An appreciating dollar and jump in Treasury yields initially dragged the precious metal from a one-month peak. However, prices seem to be making their way back towards this point ahead of another big week and potentially volatile week for gold.

In July, the US economy created 528,000 jobs, well above the forecast of 250,000 while the unemployment rate fell to 3.5% as the labour market condition tightened. With the strong jobs report boosting the dollar and supporting the case for another jumbo Fed rate hike, this could spell more trouble for zero-yielding gold.

It is worth keeping in mind that before the NFP upside surprise, gold drew ample support from geopolitics risks, recession fears, reduced Fed hike bets, and a weaker dollar. In fact, the precious metal has rallied for the last three weeks on these themes with geopolitical tensions and global growth concerns offering an opportunity for the precious metal to shine.

Taking a quick look at the technicals, gold remains in a bullish trend on the daily charts. The current upside momentum could take prices towards $1809. However, if the fundamentals start to empower bears – then things could get ugly for gold. We are likely to see the precious metal display high levels of sensitivity to the pending US inflation data.

All eyes on US inflation report

Inflation in the United States accelerated 9.1% in June, its highest level in 40 years!

According to Bloomberg, July’s inflation data is expected to show annual inflation cooling to 8.7%. Should expectations become reality, this will be a welcome development for markets and may fuel speculation around inflation peaking. Now when factoring the market obsession and reactivity to anything relating to rising prices, it may be wise to fasten your seatbelts!

Another jump in US consumer price inflation may solidify expectations around the Federal Reserve hiking rates by another 75 basis points in September. Traders are currently pricing in a 78% probability the Fed continues the pace of jumbo rate hikes for its decision in September. Given gold’s zero-yielding nature, this is certainly bad news and could result in steep downside losses.

However, if the inflation report meets or misses expectations – this could raise hopes over consumer prices plateauing. Such a development could encourage the Fed to dial back on its aggressive approach toward rates. If the dollar weakens and Treasury yields fall on such a development, gold could be given more room to fight back.

Gold speeding into a brick wall?

Gold bulls remain in the driving seat with their feet on the accelerator, clawing back losses from Friday’s selloff. Prices are trading around the $1785 level which is just below the 50-day Simple Moving Average. A strong breakout above this point could encourage an incline towards $1809 and potentially $1840 – a level below the 100 and 200-day SMA. However, if 1809 proves to be a tough nut to crack – prices may slip back towards $1785 and $1752, respectively.

Zooming in on the weekly charts, prices remain in a bearish channel. However, bulls are making a presence and have been in control for the past 3 weeks. The upside momentum could take prices towards $1830 and $1875, respectively. A decline below $1740 is seen triggering a selloff towards $1685 – a level just above the 200-week Simple Moving Average.