Gold price (XAU/USD) builds on the previous day's mixed US macro data-inspired recovery from the $2,600 neighborhood or a nearly three-week low and gains positive traction for the second straight day on Friday. US data published on Thursday showed that the annual rise in the headline US Consumer Price Index (CPI) was the lowest since February 2021 and a surge in the weekly jobless claims. This, in turn, suggested that the Federal Reserve (Fed) will continue cutting interest rates, which keeps the US Dollar (USD) bulls on the defensive below the highest level since mid-August and benefits the non-yielding yellow metal.

Meanwhile, the markets now seem to have fully priced out the possibility of a more aggressive easing by the Fed and another oversized interest rate cut in November. The expectations were reaffirmed by the September FOMC meeting minutes, which, in turn, acts as a tailwind for the Greenback and might cap the Gold price. This, along with hopes that China will announce more fiscal stimulus measures on Saturday to boost growth in the world’s second-largest economy, might keep a lid on the safe-haven precious metal. This, in turn, warrants some caution for aggressive bullish traders ahead of the release of the US Producer Price Index (PPI).

Daily Digest Market Movers: Gold price is underpinned by bets for more interest rate cuts by Fed, subdued USD demand

The US Labor Department reported on Thursday that the headline Consumer Price Index rose 2.4% in the 12 months through September, while the core gauge, which excludes food and energy prices, climbed 3.3%. 

The stronger US consumer inflation data fueled speculations about a slower pace of rate cuts by the Federal Reserve and lifted the US Dollar to a nearly two-month top, though the initial reaction faded rather quickly. 

The number of Americans seeking unemployment benefits increased by 33,000, to a seasonally adjusted 258,000 in the week ended October 5 vs. 230,000 expected and pointed to signs of weakness in the US labor market. 

Given that the Fed has shifted its focus on obtaining maximum sustainable employment, the mixed data suggests that the US central bank will continue cutting interest rates and continue to benefit the non-yielding Gold price. 

Meanwhile, the yield on the benchmark 10-year US government bond manages to hold above the 4% threshold, which acts as a tailwind for the Greenback and might keep a lid on any further gains for the XAU/USD. 

China's finance ministry will hold a briefing on Saturday and release more details of fiscal stimulus measures, underpinning the risk sentiment and contributing to capping any meaningful upside for the commodity.

Traders now look forward to the release of the US Producer Price Index (PPI) report, which will drive the USD demand and produce short-term opportunities around the precious metal heading into the weekend.

Technical Outlook: Gold price seems poised to appreciate further and aim to challenge all-time high near 2,685-2,685 area

From a technical perspective, the overnight goodish rebound from the vicinity of the $2,600 mark and the subsequent move back above the $2,630 static support breakpoint-turned-resistance favors bullish traders. Moreover, oscillators on the daily chart hold in positive territory and suggest that the path of least resistance for the Gold price is to the upside. Hence, some follow-through strength towards the $2,657-2,658 horizontal barrier, en route to the $2,670-$2,672 supply zone, looks like a distinct possibility. The momentum could eventually lift the XAU/USD to an all-time high, around the $2,685-2,686 region touched in September. This is closely followed by the $2,700 mark, which if cleared will set the stage for an extension of a well-established multi-month-old uptrend.

On the flip side, the Asian session low, around the $2,630-2,628 region, now seems to protect the immediate downside, below which the Gold price could challenge the $2,600 pivotal support. A convincing break below the latter will be seen as a fresh trigger for bearish traders and pace the way for deeper losses. The XAU/USD might then extend the corrective decline towards the next relevant support near the $2,560 zone en route to the $2,535-2,530 region before eventually dropping to the $2,500 psychological mark.

Source: FXSTREET

US inflation came in slightly above expectations, but a jump in weekly jobless claims shifted the focus to the need for further policy easing, dampening speculation that the Fed may not cut rates in November.

Consumer prices rose 0.2% m/m in September, the same as the previous month, while annual inflation slowed from 2.5% to 2.4%, above expectations of 2.3%. Housing and food were important drivers, accounting for three-quarters of the total price increase.

The core index, which excludes energy and food prices, accelerated its annual growth rate from 3.2% to 3.3%, the first acceleration in a year and a half. This proves that slowing inflation is no easy task in the context of full employment and is mediated by low oil and fuel prices.

The impact of accelerating core inflation—usually a bullish factor for the dollar—was overwhelmed this time by an unexpected jump in jobless claims last week. Initial claims were reported to have risen to 258K from 225K the previous week and an expected 231 K. The current level is the highest since last August and the fourth highest in almost three years as the US labour market recovered from the shutdown shock.

About two months ago, financial markets reacted nervously to employment signals, but the return of weekly claims to normal levels reassured investors that we were seeing a short-term spike rather than a trend reversal. Now, the situation is reversed: strong NFPs versus the alarm from the weekly numbers.

The dollar fluctuated between 0.4% and 0.1% in the first moments after the data was released but has only lost 0.1% at the time of writing on such conflicting data. Perhaps investors will now eagerly look for signals from Fed members to learn their assessment of the situation, which the market will follow.

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