After securing its best week since mid-January, could gold prices be gearing up for more upside?

The precious metal staged a solid rebound last week, climbing 2.5% due to dollar weakness and positive economic data from China. A pullback in Treasury yields last Friday fuelled upside gains, pushing prices closer to the 50-day Simple Moving Average around $1870. Price action suggests that bulls could be back in action after gold received a thorough beating last month. However, the key question is whether the current momentum will result in a bullish reversal or a dead cat bounce.

Revisiting our 2023 outlook, we discussed how gold could be one of the biggest winners this year based on expectations around the Federal Reserve pausing rate hikes down the line. In February, these expectations were tempered by robust jobs data and sticky inflation figures which fuelled fears about rates staying higher for longer. Nevertheless, sentiment towards gold may experience a positive shift this month if US economic data disappoints and inflation shows signs of cooling.

Taking a quick looking at the technical picture, gold turned bullish on the daily charts after breaking above the $1845 lower high. A strong daily close above the 50-day SMA could encourage an incline towards $1880 and $1900, respectively.

Big week for gold as Powell & NFP eyed

Watch this space as the events this week could either fuel gold’s upside momentum or end the party for bulls. All eyes will be on Fed Chair Jerome Powell’s Testimony and US jobs data which have the potential to inject the precious metal with explosive levels of volatility.

On Tuesday, Fed Chair Powell provides his semi-annual report to the Senate Banking Committee. Any hints or signals on the Fed potentially straying away from 25bp hikes in future meetings will most likely influence markets. Powell will address the House Financial Services Committee on Wednesday and is expected to reiterate a similar message. If Powell strikes a hawkish tone during Testimony, this could rekindle dollar strength and rate hike bets – ultimately dragging gold prices lower. Alternatively, a cautiously sounding Powell may cool rate hike bets, providing even more room for gold bulls to fight back.

It’s all about the US jobs report on Friday which could determine whether the dollar’s renewed strength is temporary or lasting. After the breathtaking 517,000 reading back in January, around 215,000 is projected for February. Another healthy jobs report may reinforce expectations around the Federal Reserve holding rates higher for longer. On the other hand, if the NFP report fails to meet expectations – the dollar is likely to tumble as investors pare back their rate hike bets.

Other factors influencing gold

It will be wise to keep an eye on the ADP’s monthly read and initial jobless claims which could act as an appetiser before the main course. On the geopolitical front, developments concerning Sino-US relations may add more spice and flavour to the precious metal – especially if investors become edgy. While escalating tensions could fuel risk aversion sweetening appetite for safe-haven assets, this also includes the dollar. As we have identified earlier, dollar strength tends to make things difficult for gold bulls.

Gold to see rebound or dead cat bounce?

Gold turned bullish on the daily charts after prices blasted above $1845 lower high. The precious metal trades above the 100-day and 200-day Simple Moving Average with bulls eyeing the 50-day SMA at $1870. A strong breakout and daily close above this level could encourage an incline toward $1880 and potentially beyond the psychological $1900 resistance level. On the other hand, if bulls are capped below the 50-day SMA or lose momentum around $1880 – this could trigger a move lower with $1825 and $1800 acting as key levels of interest. Ultimately, the pending key US economic reports and Powell’s testimony will most likely shape the outlook for gold this month.