Spot gold is showing renewed strength as investors position ahead of this week’s critical US inflation data, with softer Treasury yields, a weaker US dollar and falling oil prices combining to lift bullion sharply higher.
Gold surged 3.7 per cent last week, marking its strongest weekly performance in months, as spot prices climbed from lows near $4,040 to settle around $4,215. The rally came as traders reassessed expectations for future US interest rate hikes following a sharp pullback in oil prices and easing inflation concerns.
The move lower in crude oil proved to be a major turning point for precious metals markets. Earlier in the week, rising oil prices linked to Middle East tensions had reinforced fears of persistent inflation and higher interest rates for longer. That environment weighed heavily on gold.
However, sentiment shifted rapidly after reports suggested possible progress in talks between the United States and Iran, triggering a sharp selloff in oil markets. As energy prices eased, traders began scaling back expectations of further Federal Reserve tightening, sending Treasury yields lower and reigniting demand for gold.
At the same time, the US Dollar Index weakened against major currencies, improving international buying power for gold investors and adding further momentum to the rally.
Markets were also supported by a softer US employment report, which indicated that while the labour market remains resilient, economic growth may finally be starting to cool after months of elevated inflationary pressure. The data reinforced expectations that the Federal Reserve may be nearing the end of its tightening cycle.
Technically, gold remains in a broader uptrend despite recent volatility. Analysts are closely watching the $4,744 level as the key breakout point. A sustained move above that area could open the door toward resistance between $4,850 and $5,028. On the downside, support is expected to emerge between $4,495 and $4,401 if prices retreat.
Despite the strong rally, analysts caution that this week’s US Consumer Price Index report will likely determine gold’s next major move.
Economists expect April CPI inflation to rise 0.6 per cent month on month and 3.7 per cent annually, while core inflation is forecast at 0.3 per cent monthly and 2.7 per cent yearly. Any inflation reading above expectations could quickly reverse gold’s gains by strengthening the US dollar and pushing Treasury yields higher once again.
A softer inflation result, however, could provide the macroeconomic backdrop gold bulls have been waiting for all year, potentially paving the way for a sustained breakout higher.
For now, the gold market remains highly sensitive to inflation data, interest rate expectations and movements in oil prices, with Tuesday’s CPI report expected to set the tone for the week ahead.
