Amid recent decline, weak inflation is exactly what gold needs

Next week, gold prices might still be weak since Fed Chair Jerome Powell is continuing to adopt tightening policy in an effort to keep the market from becoming too dovish. At the time of writing, the precious metal is trading at $1936.68 per ounce.

Powell said that if inflation pressures didn’t subside, the US central bank would not be at all hesitant to raise interest rates again because it doesn’t think that monetary policy is restrictive enough to bring inflation down to the 2% target. Powell’s tightening bias is causing gold prices to have their worst week in six.

As the geopolitical uncertainty that propelled gold prices to $2,000 continues to fade, investors have redirected their attention towards U.S. monetary policy. Compared to oil, which is also underperforming as the geopolitical fear trade unravels, gold is holding up better. Gold may benefit from lower oil prices as they allay concerns about inflation and allow the Federal Reserve to tone down its hawkish rhetoric.

With a renewed emphasis on U.S. economic data, especially the Consumer Price Index due out next week, inflation pressures still have a long way to go. If retail sales figures are lower than anticipated, suggesting that consumers are beginning to falter and are unable to sustain the current level of economic activity, gold may see a safe-haven bid.