FXTM: Super central bank week strikes, gold or usher in a major breakthrough?

The gold market has been shaken, but this may be the calm before the storm.

Affected by key economic data and high-risk events, the gold market may experience a major market move this week.

(▲ XAUUSD H4 source:fxtmFXTMT4 platform)

Over the past few weeks, gold prices have been stuck between the 1938 support level and the 1983 resistance level, and may be on the verge of a major breakout, for the following reasons.

The latest US inflation data

On June 13 (Tuesday), the United States released the May CPI.

The market expects US inflation to slow again in May after moderating slightly in April. Overall CPI is expected to increase 0.2% month-on-month in May, compared with the previous value of 0.4%, and 4.3% year-on-year, compared with the previous value of 4.9%. CPI growth peaked at 9.1% in June last year, and then continued to decline due to lower energy and commodity prices.

Investors are paying more attention to core CPI, which strips out higher food and energy prices, and is expected to grow at 0.4 per cent month-on-month, down from 5.5 per cent in April to 5.3 per cent year-on-year.

Signs of cooling inflationary pressures could strengthen expectations that the Federal Reserve will end its rate hikes, giving gold bulls a boost.

If inflation remains sticky and CPI growth exceeds market expectations, the market is betting that the Federal Reserve will keep interest rates high for longer, which could drag gold prices lower.

2) Federal Reserve interest rate decisions

On June 14 (Wednesday), the Federal Reserve released its interest rate decision

The Fed is widely expected to keep rates on hold, with Fed funds futures putting traders at a 23 per cent chance of a 25 basis point rise on Wednesday. However, last week's surprise rate rises by the Reserve Bank of Australia and the Bank of Canada have created some uncertainty about whether the Fed will hold its ground. Investors are closely watching the latest dot plot and Fed Chairperson Jerome Powell's press conference for clues about the central bank's next move.

If the Fed remains hawkish and signals another rate hike in July, it could weaken gold prices - especially if the dollar rises alongside Treasury yields.

If the Federal Reserve unexpectedly announces a rate hike, gold prices will come under pressure, possibly falling towards the 1900 area, which is the lowest level since mid-March 2023.

3) Can gold prices break through key technical levels?

Since mid-May 2023, the gold market has been trading within a range, and now it may be ready to break out.

If the price of gold breaks through effectively and closes at the 1983 resistance level, the market outlook is expected to advance to the 2000 psychological mark and look at 2018; on the other hand, if the price of gold falls below 1938 (the 50-day moving average), it will open the channel for a drop of 19000. To sum up, the trend of gold prices this week will be greatly influenced by US inflation data and the Federal Reserve meeting.

(▲ XAUUSD D1 source: FXTM MT4 platform)

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