Week Ahead: US CPI Data To Shape Gold Outlook

As the countdown draws closer to the key US jobs report later today (Friday, August 4), investors may already be keeping a close eye on what’s to come in the week ahead.

All eyes will be on the incoming US inflation data, speeches from some Fed officials as well as earnings announcements that could spark volatility across the board.

Monday, August 7

• CNH: China forex reserves
• EUR: Germany industrial production
• USD: Atlanta Fed President Raphael Bostic, Fed Governor Michelle Bowman speech

Tuesday, August 8

• AUD: Australia Westpac consumer confidence, NAB business confidence
• CNH: China trade
• EUR: Germany CPI
• USD: Philadelphia Fed President Patrick Harker speech, US trade

Wednesday, August 9

• CNH: China CPI, PPI, money supply, new yuan loans
• SPX500_m: Walt Disney earnings

Thursday, August 10

• JPY: Japan PPI
• USD: July CPI, initial jobless claims, Atlanta Fed President Raphael Bostic speech

Friday, August 11

• GBP: UK industrial production, GDP
• USD: US University of Michigan consumer sentiment, PPI

The July US Consumer price index (CPI) report published on Thursday, August 10 will most likely act as a key piece of information that determines whether the Fed raises rates one final time in 2023 or not.

When factoring in the Federal Reserve’s shift to data dependence, markets are likely to show increased sensitivity to US economic releases moving forward, including the pending NFP release this afternoon.

Market expectations for US July CPI:

• CPI year-on-year (July 2023 vs. July 2022) to rise 3.3% from 3.0% in the prior month.
• Core CPI year-on-year to remain unchanged at 4.8% from 4.8% seen in June.
• CPI month-on-month (July 2023 vs June 2023) to remain unchanged at 0.2% from 0.2% in the prior month.
• Core CPI month-on-month to remain unchanged at 0.2% from 0.2% seen in June.

There has certainly been proof of inflationary pressures cooling the US economy with annual inflation slowing to 3% back in June – the lowest since March 2021. Despite CPI forecasted to rise in July, the core inflation print is expected to remain unchanged which could support optimism around the Fed being one step closer to taming the inflation beast. Should July’s CPI report print cooler than expected, this could support the argument around the Fed being finished with rate hikes this year.

How might the US CPI data impact gold?

Gold prices could see heightened volatility due to the incoming US inflation report.

After gaining 2.4% in June, the precious metal has already kicked off the new month on a negative note, shedding 1.6% month-to-date (as of writing). The pending US NFP report in a few hours will most likely impact the precious metal’s outlook ahead of the US inflation print. Given gold’s zero-yielding nature and an inverse relationship with the dollar, it may be set for a wild ride in the week ahead.

• Gold prices could shine if the inflation numbers print below market forecast, as signs of slowing inflation strengthen the argument around the Fed being done with hikes in 2023.
• Should the inflation figures exceed market forecasts, gold prices are likely to tumble as speculation rises around the Fed hiking rates one more time this year.

Technical outlook: Bears in control?

Gold prices are under pressure on the daily charts with prices trading below the 50 and 100, day SMA. The recent breakdown below the $1940 support could signal further downside towards $1900 and $1871, respectively. Should prices push back above $1955, this could open a path towards $1985 and $2000.