Gold price (XAU/USD) attains new historic peaks amid growing expectations of a Federal Reserve rate cut.

• Gold concluded its third consecutive week with gains, but the XAU/USD technical analysis indicates highly overbought conditions.
• The upcoming week’s highlight in the US economic calendar will be the release of February inflation data.

Gold (XAU/USD) gained bullish traction, surging to a fresh all-time high above $2,180 this week. The rally was fuelled by declining US Treasury bond yields and widespread selling of the US Dollar (USD). The pair remains in a technically overbought state as market participants anticipate crucial US inflation data next week.

Gold recorded its most significant weekly increase since October.

Following a robust finish last week with nearly a 2% surge on Friday, Gold initiated the new week with strength. As XAU/USD surpassed $2,100, technical buyers entered the scene, propelling the pair upward.

On Tuesday, US data revealed a decline in the ISM Services PMI, slipping from 53.4 in January to 52.6 in February. The Prices Paid Index, indicating inflation, decreased from 64 to 58.6, and the Employment Index dropped to 48, signaling a contraction in service sector payrolls. Following this, the yield on the 10-year US Treasury bond fell below 4.2%, leading to USD selling pressure and enabling Gold to maintain its upward trajectory.

Federal Reserve (Fed) Chairman Jerome Powell delivered the semi-annual Monetary Policy Report and testified before the House Financial Services Committee on Wednesday. Powell emphasized that decisions on policy rate reduction would hinge on incoming data, and expressed the desire for increased confidence in inflation reaching a sustainable 2% before any policy adjustments. While Powell avoided specifying the timing of a policy pivot, he left the possibility of a rate cut in June open. Consequently, mid-week risk flows prevailed, resulting in widespread USD weakness and a continued uptrend in Gold.

On early Thursday, China, the world’s largest Gold consumer, announced a widened trade surplus of $125.16 billion for January-February, surpassing the anticipated $103.7 billion and propelling XAU/USD higher during Asian trading. Later in the day, the 10-year US yield dipped below 4.1% after the US Bureau of Labor Statistics revised fourth-quarter Unit Labor Costs to 0.4%. The US Department of Labor reported 217,000 Initial Jobless Claims for the week ending March 12, aligning with the previous week. Gold concluded its seventh consecutive trading day with gains, reaching a new record high above $2,160.

The US Bureau of Labor Statistics reported a robust increase of 275,000 in Nonfarm Payrolls for February, surpassing the anticipated 200,000. However, January’s figures were revised lower from 353,000 to 229,000. Alongside, the Unemployment Rate climbed from 3.7% to 3.9%, while the Labor Force Participation Rate remained steady at 62.5%. This data triggered renewed selling pressure on the USD, leading to gold surging beyond $2,180.

Gold prices could have a short-lasting reaction to inflation data.

The Bureau of Labor Statistics (BLS) is set to publish the Consumer Price Index (CPI) data for February on Tuesday. Projections indicate a monthly increase of 0.4% for both the CPI and the Core CPI, which excludes the impact of volatile food and energy prices.

As per the CME Fed Watch Tool, the current market assessments indicate an approximately 80% likelihood of the Fed implementing a policy rate cut in June. Additionally, there is a roughly 25% probability of a 25-basis points rate reduction in May.

In the June meeting, investors will evaluate three additional CPI releases, excluding February. Consequently, the February CPI data is not expected to impact market positioning substantially. A Core CPI reading nearing 0% might revive expectations for a May rate cut, exerting additional pressure on the USD. While a robust Core CPI increase in February is unlikely to sway market sentiment towards a no-change scenario for the Fed’s interest rate in June, it could prompt an initial downward correction in XAU/USD, given the oversold nature of the USD.

February Retail Sales will take center stage on Thursday in the US economic calendar, followed by the release of February Industrial Production data by the Fed on Friday.

Meanwhile, the Federal Reserve will enter the blackout period preceding the March 19-20 monetary policy meeting. After digesting Tuesday’s inflation data, investors might turn their attention to technical aspects in XAU/USD for potential trading opportunities.