Gold price continues to recover from multi-week lows, climbing back above the $2,640 level

• The price of gold attracts some buyers for the second day in a row on Friday.
• Fed rate cut bets keep the USD on the defensive and provide support to the precious metal.
• Declining chances for more aggressive Fed easing could cap gains ahead of US PPI.

The price of gold (XAU/USD) is riding on mixed recovery inspired by US macro data from the $2,600 neighborhood or a near three-week low and gaining positive traction for the second day in a row on Friday. US data released on Thursday showed annual growth in the US consumer price index (CPI) was the slowest since February 2021 and a rise in weekly jobless claims. This, in turn, suggested that the Federal Reserve (Fed) will continue to cut interest rates, which keeps the US dollar (USD) bearish on the defensive below its highest level since mid-August and benefits the non-yielding yellow metal .

Meanwhile, markets appear to have all but ruled out the possibility of more aggressive Fed easing and another outsized interest rate cut in November. Expectations were reaffirmed by the minutes of the September FOMC meeting, which in turn acts as a tailwind for the Greenback and could cap gold prices. That, along with hopes that China will announce more fiscal stimulus on Saturday to spur growth in the world’s second-largest economy, could keep a lid on the precious metal. This, in turn, calls for some caution for bullish bullish traders ahead of the release of the US Producer Price Index (PPI).

Daily Digest Market Movers: Gold price supported by bets on more Fed rate cuts, weak USD demand

• The US Labor Department reported on Thursday that the consumer price index rose 2.4% in the 12 months to September, while the core gauge, which excludes food and energy prices, climbed 3.3%.
• Stronger US consumer inflation data fueled speculation about a slower pace of interest rate cuts by the Federal Reserve and lifted the US dollar to a near two-month high, although the initial reaction faded rather quickly.
• The number of Americans filing for jobless benefits rose by 33,000 to a seasonally adjusted 258,000 in the week ended Oct. 5, against an expected 230,000, and pointed to signs of weakness in the U.S. labor market.
• With the Fed shifting its focus to achieving maximum sustainable employment, the mixed data suggests the US central bank will continue to cut interest rates and continue to benefit from the unprofitable gold price.
• Meanwhile, the benchmark US 10-year Treasury yield is managing to hold above the 4% mark, which acts as a tailwind for the Greenback and could keep a lid on any further gains for XAU/USD.
• China’s Finance Ministry will hold a briefing on Saturday and release more details on the fiscal stimulus measures, supporting risk sentiment and helping to limit any significant upside for the commodity.
• Traders are now eagerly awaiting the release of the US Producer Price Index (PPI) report, which will boost USD demand and generate short-term opportunities around the precious metal heading into the weekend.

Technical outlook: Gold price looks poised to appreciate further and aims to challenge the all-time high near the 2,685-2,685 area

From a technical perspective, the overnight positive bounce from the vicinity of the $2,600 threshold and the subsequent move back above the $2,630 static support favors bullish traders. Moreover, the oscillators on the daily chart are holding in positive territory and suggest that the path of least resistance for the price of gold is up. Therefore, some tracking strength towards the $2,657-$2,658 horizontal barrier en route to the $2,670-$2,672 supply area seems a distinct possibility. Momentum could ultimately lift XAU/USD to an all-time high around the $2,685-$2,686 region reached in September. This is closely followed by the $2,700 level, which, if cleared, will set the stage for an extension of a well-established multi-month uptrend.

On the other hand, the Asian session low around the $2,630-$2,628 region now appears to be protecting the immediate downside, below which the gold price could challenge the $2,600 pivot support. A convincing break below the latter will be seen as a new trigger for bear traders and pave the way for deeper losses. XAU/USD could then extend the corrective decline towards the next relevant support near the $2,560 area on its way to the $2,535-2,530 region before finally dropping to the psychological $2,500 threshold.