The case for buying gold has been increasing over the last couple of weeks due to increased expectations that the Federal reserve will need to stop hiking interest rates as US economic activity show signs of slowing down.
The main economic data point concerning markets was the weak US PMI prints last week, which resulted in a strong bid coming into bonds which helped lift gold.
Now this week is a really important data week for the US. On Thursday. We have the Fed’s preferred measure of inflation, the PCE reading. Then on Friday we have the all-important labour data. The Federal reserve see strong labour data as inflationary and weak labour data as deflationary, so if we see miss in the Feds preferred measure inflation (PCE), and a miss in jobs, then it will be reasonable to expect gold to continue moving higher. This will be because bonds would be likely to find more buyers and the dollar would likely weaken and when this happens together it naturally lifts gold higher.
Also look at the seasonal pattern that’s coming out for gold. What we can see is around the turn of the month gold tends to gain so if we see a miss in these data points, the seasonal strongly support gold upside as well. This is one pattern to keep an eye on.
Major Trade Risks:
The biggest risk here is if the inflation reading comes in high and the jobs data come on strong, then that’s a natural headwind for gold.
Remember don’t just trade it, Seasonax it!