Gold Surges on Weaker US Inflation Data

The price of gold has experienced substantial gains, surpassing $1,950 following a less pronounced increase than anticipated in the US Consumer Price Index (CPI) for October. This has led traders to scale back their bets on a December Federal Reserve rate hike. The US dollar slid in tandem with US Treasury bond yields due to disappointment in US inflation data. Currently, the price of gold is confined to a narrow range, correcting towards the 38.2% Fibonacci retracement, situated around $1,933.80. The short-term outlook has turned bearish, with gold trading below the 20-day Exponential Moving Average (EMA), although the 50-day EMA at approximately $1,938.00 continues to provide support. Investors await October's US inflation data, hoping for clarity on monetary policy. Economists project steady growth in the core Consumer Price Index (CPI) but a slowdown in overall inflation. Persistent US inflation could fuel expectations of further restrictive measures by the Federal Reserve (Fed), committed to timely reducing inflation to 2% and prepared to raise rates if deemed necessary.

Comment:

The gold price (XAU/USD) is facing selling pressure following slower-than-expected declines in the US Retail Sales data for October and a steep drop in the US monthly headline Producer Price Index (PPI) due to falling gasoline prices. Despite these pressures, the overall demand for gold remains positive as easing price pressures in the US economy reduce expectations of further policy-tightening by the Federal Reserve.

The soft US inflation report for October, particularly the slow growth in headline inflation, suggests that current interest rates set by the Fed are sufficient to address inflation concerns. The US Dollar and bond yields are broadly down as the soft Consumer Price Index (CPI) boosts confidence among investors in the possibility of early rate cuts by the Fed.

The latest inflation figures have shifted sentiment towards keeping interest rates unchanged, with hopes that discussions about cutting interest rates may emerge. Federal Reserve officials, including Chairman Jerome Powell and Richmond Federal Reserve Bank President Thomas Barkin, acknowledge the progress on inflation but express concerns about the need for further actions to curb demand and inflation.

The decline in US Retail Sales is attributed to lower demand for automobiles, impacted by higher interest rates affecting household costs. Additionally, the US PPI report for October shows a faster decline, primarily due to falling gasoline prices.

Despite these economic dynamics, gains in gold may be limited due to a risk-on mood and easing tensions in the Middle East. Technically, the gold price has fallen to near $1,960.00 after failing to sustain levels above $1,970.00. However, the precious metal has found support near the 50-day Exponential Moving Average (EMA), indicating a broader bullish sentiment.

Comment:

The XAU/USD Gold spot price witnessed a notable 1.35% daily gain, surging to around $1,985 on Thursday. This increase was fueled by a decline in US Treasuries following the release of disappointing US economic data, leading to reduced expectations of further Federal Reserve (Fed) tightening. Weak figures in Initial Jobless Claims and Industrial Production contributed to the decline in Treasuries, making non-yielding metals like gold more attractive. The market, as indicated by the CME FedWatch tool, anticipates a pause in December and is pricing in rate cuts in April-May 2024. A weaker US Dollar and expectations of a less aggressive Fed could contribute to further upside for gold. The technical analysis shows a bullish bias on the daily chart, with positive momentum in the Relative Strength Index (RSI) and rising green bars in the Moving Average Convergence (MACD) histogram. The pair is also trading above key Simple Moving Averages (SMAs), indicating overall control by bulls.