An easing of immediate trade fears, a steadier dollar tone and optimism surrounding global growth are likely to curb support for defensive assets in general and weaken gold, especially if bond yields move higher. Gold ended little changed for the week as a whole, with resistance close to $1,340 per ounce, while there was support above $1,310 and a close near $1,320 as the dollar trade-weighted index closed little changed despite choppy trading.
U.S. economic data releases will inevitably have an important impact given the focus on U.S. inflation trends and the outlook for Federal Reserve tightening. Following the mixed employment report, confidence in growth has been boosted by the very strong increase of over 300,000 for February non-farm payrolls, especially with a jump in employment. Inflation fears have been eased by the lower-than-expected increase in average earnings, with annual growth held to 2.6%.
Renewed optimism surrounding a goldilocks outlook will tend to curb defensive gold buying, and higher global yields should sap support, with inflation developments still crucial. The CPI data will be the major focus during the week, especially after the higher-than-expected release last month. Headline prices increased 0.5% for the month, with a core increase of 0.3% that increased market fears surrounding higher U.S. inflation. Therefore, the latest data will be very important in triggering fresh fears if there is another round of strong data, while weaker-than-expected data would also help soothe immediate inflation fears.
The producer prices data and retail sales data are due for release on Wednesday. In broad terms, strong data would support the dollar and increase speculation that the Federal Reserve will move to increase interest rates four times this year. Bond yields would be liable to move higher, and this combination would tend to trigger significant gold losses. The Empire State manufacturing data and Philadelphia Fed manufacturing index will be released on Thursday. The headline data will be significant for confidence in the outlook, and price indices will also be an important component.
There will be no comments from Federal Reserve officials on monetary policy or the economic outlook, as a blackout period will be in force ahead of the March 21 policy decision, with strong expectations of a further 0.25% increase in interest rates.
Developments surrounding risk appetite will be important, with global trade policies a significant element after President Trump moves ahead with import tariffs on steel and aluminum. Exemptions for Canada and Mexico took some of the heat out of the debate and eased market fears slightly, although concerns will increase again if there is major retaliation. If markets take a more relaxed attitude, there is likely to be reduced defensive gold demand.
Chinese economic policies will be monitored closely, and aggressive rhetoric out of Beijing would undermine risk appetite and boost gold, especially if Asian equity markets are subjected to sustained selling. Commentary from the ECB will also be significant, with gold liable to gain some support if officials again warn over the risk of trade wars. The Hong Kong dollar will also be a significant focus after the slide to near the weakest permitted level in the currency band.