Yesterday gold prices experienced a rather volatile trading session, fluctuating in the range between 1,974 and 2,003. Therefore, factors of growth and decline compensated each other, and by the end of Thursday the gold price almost hadn't changed. Today market participants are awaiting the last portion of important U.S. economic statistics before the Fed meeting on May 3, so significant fluctuations in the yellow metal prices are expected during the day again.
The increased volatility in the financial markets on Thursday was driven by the release of the U.S. GDP growth estimate for the first quarter of 2023. The data were significantly lower than expected, the rise in the U.S. economy slowed from 2.6% to 1.1% against the forecast of 2%. Even though the GDP statistics will be updated in the coming months, no radical revision of the current figures is expected. There is a rather sharp slowdown in economic growth, which might well turn into a recession.
The combination of the lowest GDP growth and increased price growth is called stagflation, and this state of the economy is the most favorable for gold. Many fund managers are increasing the share of precious metals and other commodities in their assets, expecting stagflation.
Before the end of the current week investors and traders will have another important event to look forward to. The PCE price index data will be released on Friday, it is considered to be the Fed’s best indicator of inflation. The market consensus forecast suggests no major changes in the price growth rate, monthly fluctuations should fall within the range of +/- 0.1%.
In case the PCE inflation will be higher than expected, another fall in gold prices to the 1,970 area might be observed. At this level, the market participants’ interest to buy at lower prices might increase significantly, contributing to gold’s rebound.
The following trading strategy may be offered:
Buy gold when falling to the level of 1,970. Take profit – 2,005. Stop loss – 1,950.
Traders may also use the Trailing stop instead of the fixed Stop loss at their discretion.