Before the release of the U.S. PPI data, gold prices are expected to continue their rebound from a three-week low.

Amid concerns about employment, the dollar gave up its gains led by the U.S. CPI, and hawkish Fed remarks were ignored.

Gold prices have once again found their footing above the 21-day moving average at $2,627, could there be further recovery ahead?

Gold prices are poised to build on their rebound from a three-week low of $2,604 earlier on Friday. Broad-based risk aversion and a modest decline in the U.S. dollar (USD) have supported gold prices, with the U.S. Producer Price Index (PPI) data set to be released later on Friday.

U.S. employment worries overshadow inflation concerns, boosting gold prices

Gold prices continue to cheer the possibility of a 25 basis points (bps) rate cut by the Federal Reserve (Fed) in November. According to the FedWatch tool from CME Group, the market currently estimates about an 86% chance of this happening next month.

The health of the U.S. labor market remains a concern for investors after the number of first-time claims for unemployment benefits surged by 33,000 to a seasonally adjusted 258,000 in the week ending October. The disappointing U.S. employment data overshadowed the hot Consumer Price Index (CPI) inflation data for September, keeping hopes for a rate cut in November alive.

The annual U.S. CPI inflation rate fell from 2.5% in August to 2.4% in September, the lowest level since February 2021, but still above the estimated 2.3%. The CPI rose 0.2% month-on-month in September, matching the increase in August and higher than the expected 0.1%.

As a result, the dollar failed to maintain its recovery momentum due to a plunge in short-term two-year U.S. Treasury yields and fell against its main competitors from a two-month high. This helped gold prices rebound from a multi-week low.

The dollar's pullback was partly driven by a decline in the dollar/yen, spurred by hawkish remarks from Bank of Japan (BoJ) Deputy Governor Ryozo Himino, who said on Thursday, "If the economic activity and price outlook presented in the July report are realized, the Bank of Japan will raise interest rates accordingly."Later on Thursday, Atlanta Fed President Raphael Bostic's slightly hawkish comments failed to bolster sentiment around the US dollar, leaving the currency at a disadvantage ahead of Friday's US PPI inflation data.

Bostic told The Wall Street Journal (WSJ) that he would be "perfectly comfortable" skipping a rate cut at the upcoming US central bank meeting. He added that the "volatility" in recent inflation and employment data might necessitate keeping interest rates on hold in November.

The dovish sentiment surrounding expectations for a Federal Reserve rate cut could be tested in the US PPI report, which will significantly impact the value of the US dollar and gold prices. The September US PPI is expected to ease to 1.6% year-over-year, while the annual core PPI inflation rate for the same period is forecast to rise to 2.7%, up from the previously reported 2.4% increase.

Gold prices may continue to find support due to increasing market optimism about China's fiscal stimulus plan, which is set to be unveiled on Saturday. Meanwhile, several speeches by Federal Reserve policymakers will also keep gold traders entertained.

Gold Price Technical Analysis: Daily Chart

On Thursday, buyers refused to give up, re-entering the game even after gold prices closed below the key 21-day simple moving average (SMA) support level on Wednesday (at $2,619 at the time).

On Thursday, gold prices reclaimed the 21-day SMA support turned resistance at the daily closing price, now at $2,628, resuming the uptrend.

The 14-day relative strength index (RSI) is pointing upwards above the 50 level, indicating more room for upward movement.

The next bullish target for gold prices is at the psychological level of $2,650 and the intermittent high near $2,670.On the downside, the immediate support lies near the three-week low around the $2,600 threshold. A sustained break below the latter could extend the downside to the low of September 20 at $2,585.

Further declines may challenge the demand area around $2,550, where the 50-day SMA aligns.