XAU/USD recovers key 21-day SMA as buyers refuse to let go

• The gold price looks set to extend the rebound from three-week lows ahead of the US PPI data.
• US Dollar Gives Back US CPI-Led Growth Amid Employment Concerns Ignored by Fedspeak.
• Gold price rises again above the 21-day SMA at $2,627, perhaps a bigger recovery?

The price of gold is trying to build on the previous recovery from the three-week low of $2,604 on Friday morning. Broad risk aversion and a modest decline in the US dollar (USD) are supporting gold prices in the direction of the US producer price index (CPI), due out later on Friday.

U.S. jobs worries outweigh red-hot inflation, lifting gold prices

The price of gold continues to be encouraged by the steady chance of a 25 basis point (bps) interest rate cut by the US Federal Reserve (Fed) in November. Markets currently have about an 86 percent chance of such a move next month, according to CME Group’s FedWatch tool.

The health of the US labor market remains a concern for investors after initial jobless claims rose by 33,000 last week to a seasonally adjusted 258,000 for the week ended October. 5. Dismal US jobs data overshadowed hot consumer price index (CPI) inflation data for September, keeping hopes of a November rate cut alive.

Annual US CPI inflation fell from 2.5% in August to 2.4% in September, the lowest level since February 2021, although it was still above the forecast print of 2.3%. CPI rose 0.2% in September, matching August’s increase and beating expectations of 0.1%.

The US dollar therefore failed to sustain its rallying momentum and pull back from two-month highs against its main rivals as short-term two-year US Treasury bond yields fell. This helped the price of gold begin a rebound from multi-week lows.

The USD’s retreat was partly sponsored by USD/JPY’s slide, fueled by hawkish comments from Bank of Japan (BoJ) Deputy Governor Ryozo Himino, who said on Thursday that “if the outlook for economic activity and prices presented in the July report is achieved. , the BoJ will raise interest rates accordingly.”

On Thursday evening, light-hearted comments from Atlanta Fed President Raphael Bostic failed to lift sentiment around the greenback, leaving the greenback on the back foot ahead of Friday’s US PPI inflation data.

Bostic said in an interview with the Wall Street Journal (WSJ) that he would be “entirely comfortable” skipping an interest rate cut at an upcoming US central bank meeting. He added that the “settlement” of recent inflation and employment data may justify suspending rates in November.

The favorable sentiment around Fed rate cut expectations could be tested in the US PPI report, significantly impacting the value of the US dollar and the price of gold. US PPI eases to 1.6% year-on-year in September, while core annual PPI inflation will rise to 2.7% over the same period, up from a previously reported 2.4% rise.

The price of gold could continue to draw support from increased optimism about China’s fiscal stimulus package, which is due to be released on Saturday. Meanwhile, speeches from several Fed policymakers will also entertain gold traders.

Gold Price Technical Analysis: Daily Chart

Buyers refused to give up on Thursday and got back into the game even after the price of gold closed Wednesday below key support at the 21-day simple moving average (SMA) then at $2,619.

Gold price retook the 21-day SMA support turned resistance, now at $2,628, on a daily closing basis on Thursday, reviving the uptrend.

The 14-day Relative Strength Index (RSI) is pointing north above the 50 level, suggesting there is room for more upside.

The next bullish targets for the gold price are seen at the psychological barrier of $2,650 and intermittent highs near $2,670.

On the downside, immediate support is seen at three-week lows near the $2,600 mark. A sustained break below the latter could extend the decline towards the September 20 low of $2,585.

Further declines could challenge the $2,550 demand zone where the 50-day SMA aligns.