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 shows 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.

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 sees strong labour data as inflationary and weak labour data as deflationary, so if we see a miss in the Fed’s 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 pattern will 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.

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